In the face of alleged violations in sale of universal life policies (ULPs), insurers would stop selling these products from tomorrow till November 4 in accordance with a stiff direction by the Insurance Regulatory Development Authority (Irda).
ULPs are basically hybrid products, having the flexibility of unit linked products (Ulips) and traditional plans.
"The Authority has received several complaints on the sale practices of the insurers regarding universal life products. After examining the complaints the Authority is satisfied that the ULPs need a better regulatory framework for protecting policyholders' interest.
"In order to ensure that the policyholders do not lock themselves in current ULPs, it is hereby ordered that the insurers shall not sell any ULPs from the close of business on October 22, 2010," Irda said in a circular to all life insurance companies yesterday.
The Irda said the guidelines for variable insurance products (VIPs) would govern the ULPs and said that it would come up with a final guideline on the same on or before November 4.
At present four companies — Max New York Life, Aviva Life, Bharti Axa Life and Reliance Life — offer these plans.
The insurance industry reaction was mixed on the said suspension, with some saying that the overnight ban would affect business, while others saying it would bring in clarity.
"The norm should be different for different companies. It should have been a direction for companies which have violated norms. Putting a ban overnight would disrupt the business functioning," Max New York Life MD and CEO Rajesh Sud said.
For protecting policyholders' interest, Irda also came up with guidelines for ULPs and sought life insurers views on the same till October 31.
"ULPs are still in evolving stage in India. So far there has been no guideline governing the ULPs. The Irda move would bring in clarity in the structure of ULPs," Bharti AXA Life VP Product & Pricing Rajeev Kumar said.
As per the draft guideline, Irda has proposed a minimum life cover of Rs 50,000 or 10 times the annual premium for a customer below 45 years of age.
For customers above 45 years, a minimum cover seven times the annual premium has been proposed.
According to Irda, the minimum policy term for such products should be five years and the lock-in period of three years. These products are to be linked to the savings bank account of a customer, Irda said.
The draft guideline says that a variable insurance policy would lapse if the customer does not pay premium for 12 months from the due date.
