In a bid to increase attractiveness of Unit linked products, Insurance Regulatory and Development Authority (Irda) has proposed commissions for Unit linked products (Ulips) to be at par with those of traditional products. In an exposure draft on Linked Insurance Products, Irda has placed minimum commission for non-single, non-pension products at 15% of the premium.
Commissions for the above mentioned policies stand at 15% for first year, 7.5% for the second year, and 5% for the subsequent years. The commissions would be paid as a% of the premium. For brokers, the limits have been set at 30% for the first year and 5% in the subsequent years.
The grace period for the policies has been set at 15 days where the policyholder pays the premium on a monthly basis and 30 days in other cases. A lock-in period of five years will be applicable for five years from the date of inception of the policy. For protecting the interests of the customers, the discontinuance charges for the policies has been capped at Rs 6,000 for policies having annualised premium of above Rs 25000.
Irda said that insurers should have one discontinued policy fund for all the pension products, one for all life insurance products and one for all health insurance products. In case of Ulips, Irda proposed that the discontinued policy fund shall be a unit fund with both government securities and money market instruments as asset categories. A minimum guaranteed interest rate of 2% per annum payable annually would be applicable to the discontinued policy account.
According to the draft, the maximum net reduction in yield has been put at 4% every year from the policy's 5th year. It would be 3.75% in the sixth year, 3% in the tenth year and 2.25% from the fifteenth year and thereafter. The net reduction in yield at maturity for policies with term less than or equal to 10 years would not be more than 3% and above 10 years shall not be more than 2.25%," said Irda in the draft.
Irda said that products confirming to the above requirements would need to disclosed to them before 31 March 2013, by the insurance company. For products that have already been filed and not yet approved, Irda has called for refiling of these products after meeting the regulatory requirements.