An insurance industry panel has suggested uniform method for calculating the fee structure of unit-linked plans, but left it to individualcompanies to fix the exact amount to be charged.
“The panel has suggested that as far as possible, the method of calculating the charges should be same, but it is not ideal to impose on the insurer the exact amount to be charged,” a source said.
The panel, which was formed after the insurance regulator felt the need to simplify ULIP charges, was mandated to look into reducing the number of charges from the existing seven (including financial guarantee charge), single definition for each charge, standardisation in expression of charges, and definition of exceptional charges.
The five-member sub-committee of actuaries formed by the Life Insurance Council has recently formed a set of recommendations after reviewing the charges structure of ULIPs. The suggestions will be submitted to Insurance Regulatory and Development Authority (Irda).
The committee has defined six specific charges. No company can levy charges beyond these six categories.
The six categories are premium-related charges, withdrawal load, insurance charge, fund-related charge, policy administration charge and specific service charge. The policy administration charge, which has been allegedly misused by insurers, has been further categorised into three segments and an insurer can only apply one of them.
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The three sub-categories of policy administration charges are fixed rupees charge inflating at a stated rate, percentage of first year premium and percentage of sum assured.
Similarly, withdrawal load charge, a charge levied whenever a policyholder withdraws money from an unit-linked fund, is expressed as percentage of first year premium or percentage of amount withdrawn.
The committee, however, did not find the need to separately show charges for any investment guarantees.
“Definition of an investment guarantee becomes a bit complex. The group (panel) felt that a separate disclosure of charges for investment guarantees does not serve much from a customer perspective, as such disclosure has any meaning only when seen in the context of the type of investment guarantee provided,” the panel said.
In order to simplify the charges structure and bring in greater transparency, the committee has suggested that Life Insurance Council may consider certain steps like strengthening sales practices, simplification of policy contract language and standardisation of the definition of health insurance.