In with the new

PERSONAL FINANCE: Insurance firms line up new ULIPs to comply with new guidelines.

Life insurance companies have started rolling out new unit linked insurance plans (ULIPs) this week following new guidelines (effective from July 1) which were aimed at increasing the "insurance" character of these products and diluting their appeal as speculative investments. The products have been redesigned on the individual as well as on the group side.

ULIPs offer market-linked returns to customers, where customers who can choose to invest in different asset classes such as money market instruments, debt or equities.

Bajaj Allianz Life Insurance has launched seven unit linked plans while Aviva Life insurance and Birla Sun Life launched 11 ULIPs each. Another five ULIPs are in the pipeline from Birla Sun Life.

SBI Life has launched two ULIPs and will file unit-linked variety of group corporate products shortly with the insurance regulator. The state-run Life Insurance Corporation of India (LIC) too has launched two new ULIP schemes while ICICI Prudential has launched one.

So what do the new ULIPs offer? There are quite a few changes. Whether it's a regular premium or a limited premium plan, the minimum policy term for any unit linked plan will be five years against three years in ULIP's earlier avatar.

The new ULIP will also have a higher quantum of life insurance cover. In fact, all ULIPs will have a minimum life insurance cover that is five times one's annual premium. The old ULIP schemes used to offer a minimal insurance cover.

A policy holder will be free to surrender or make partial withdrawals after three years and will also have the option to inject a lump sum (in addition to the premium one pays) that is not more than the 25 per cent of the cumulative premium already paid.

There are a number of free switches from one fund to another "" say, from an equity fund to a debt fund, depending on the risk appetite and view on markets "" that are now mandated. Earlier an insurance company used to charge the policy holder for every switch one made.

On maturity of a ULIP policy earlier, the company used to pay the policy holder the entire sum. The new ULIPs come with a settlement option (not applicable for pension plans) of five years "" in case a policy holder does not need the amount at the time the policy matures, one can remain invested for another five years. During this period, one can make withdrawals though the life insurance cover will not be available during this period.

All insurance companies have to compulsorily announce the risk factors on their sales brochures and websites. One needs to pay premiums regularly for the first three years to ensure that the life insurance cover does not lapse.

If a scheme is not making money for the investor, it will be terminated after three years and the surrender value will be paid out to the policy holder. This is to minimise the policy holders' losses.

Also, no loans will be granted under new ULIP plans. According to Melanie Mathais, product manager, Kotak Mahindra Old Mutual Life Insurance company, these conditions will make unit-linked insurance plans distinct from mutual funds.