To further streamline the system governing the Ulips, insurance regulator Irda today proposed to do away with wide variance in charges imposed by insurers for surrendering these securities-linked products.
Most insurers, however,are following best global practices in Ulips, said Irda, which is currently in a tussle with the market watchdog Sebi over their regulation.
Analysts said the statement sharpens Irad's position that not much is wrong with Ulips, as is made out in certain quarters. The insurance regulator issued a draft paper, suggesting uniform surrender charges for Ulips today.
The regulator also proposed various uniform norms that should be adopted by insurers for closing the policies or reviving them. As per the draft, there would be no charges for surrendering a policy with a maturity of under 10 years, if the policyholder surrenders his/her policy after six years.
For a policy with a maturity of over 10 years, there would be no charges if the surrendered from the seventh year.
The Irda also imposed maximum limits that insurers could charge from policyholders, if they surrender their policies before the sixth year, in case the policy has under 10 years of maturity. If the surrender is before the seventh year of a policy with over 10 years maturity, there are ceilings prescribed on the charges as well, Irda said.
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Similarly, the grace period for payment of the premium will be 15 days if the premium payment mode selected is monthly. In other cases, it is fixed at 30 days.
The watchdog further said a policyholder must be given an option within a period of five years of the beginning of a policy to revive or reinstate the policy. However, the insurer will have the right to decline revival of the policy based on the grounds of moral hazard or medical conditions.
In case a policy lapses, a notice should be issued to the policyholder asking him/her to take a decision whether to continue with the policy or not within 30 days of receipt of such notice.
These proposals are part of the recent Irda initiatives to make functioning of Ulips more transparent. Recently, Irda asked life insurers to disclose the commission paid to agents for Ulips, amid a debate over huge payouts given to them vis-a-vis mutual funds.
At a time when a turf war is on between Irda and Sebi over Ulips, insurance regulator said the share of these policies has increased from 50.95 per cent to 54.80 per cent of life insurance business in 2009-10.