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Friday, September 11, 2009

Ulips to have five-year lock-in from October

Existing products to come under the new rule from Jan 1, 2010.Unit-linked insurance products (Ulips) filed after September 30 will have a lock-in of five years.

The Insurance Regulatory and Development Authority (Irda) is planning to increase the period from three years at present to check mis-selling. The decision will be applicable on products filed after September 30, 2009.

“We have communicated the decision to insurers,” said Irda Member Actuary R Kannan.

“According to normal practice, we have to come up with a circular, but we have informally communicated the decision to insurers. We will come out with a notification in a couple of days,” he said.

In a meeting with the appointed actuaries yesterday, the regulator discussed the recent cap on the overall charges on Ulips and the way ahead. Insurers are expected to re-file almost all existing products by December 2009. On streamlining the file-and-use procedure, Kannan said 30 days was academic and that Irda took less time than this to approve the products.

At present, the minimum tenure for Ulips is five years. But partial withdrawals are allowed after three years.

With the new regulations coming into force from October 1 for new products and from January 1, 2010, for existing products, there will be no surrender charge from the fifth year of the policy.

Said Sanjeev Pujari of SBI Life, “In a recent meeting, the regulator indicated that the lock-in had to go up to five years. This reinforces the point that insurance is a long-term product. The longer the lock-in, the higher will be the returns.”

He added that mutual funds with three years of lock-in offered higher returns than liquid funds or products with a shorter tenure. Insurers, however, are waiting for a notification from the regulator.

“Irda has outlined the principle but we need to see how it is implemented. The lock-in should not take away flexibility and the policyholder should be able to access his funds when required,” said HDFC Standard Life Principal Officer & Executive Director Paresh Parasnis.

source: Business Standard

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