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IRDA has proposed some serious changes in the way ULIP’s would be sold to the customers. Charges, commissions, higher sum assured, longer lock-ins, ban on some policies are some significant changes which could change the way ULIP’s operate from now on. Let’s look at these changes in detail and how it can impact your finances.
Charges
IRDA has introduced a cap on charges such as surrender charges. Maximum surrender charges cannot exceed Rs 6,000 in the first year from now on. In the 4th year, these charges are capped at Rs 2,000. After 5th year, the surrender charges will be nil. Also, the cost structure of the policies would change, which mean more of your invested money will actually be invested and hence get you more in return.
Other charges cannot exceed 3% for policies of tenure less than 10 years and 2.25% for policies of tenure more than 10 years. Rate of return cannot be less than 7.75% p.a with reduction in charges.
Commissions
Maximum commission for agents would be 15% for first year, 7.5% for second year and 5% from thereon. This would be the same as was stated for traditional policies.
Higher sum assured
Previously, the minimum sum assured in case of ULIP’s was 5 times the sum assured. This limit has been increased to 10 times now. Insurers have started rolling out policies with death benefits even up to 40 times the premium. Higher coverage is always beneficial to the customers, more so if it is given at a reasonable price.
Longer lock-in periods
The minimum lock-in period for ULIP’s has been increased to 5 years from 3 years. Longer lock-in makes you stay in the policy for a longer period and thus discourages pre-mature withdrawals.
Ban on products
IRDA has imposed a ban on products like ‘Highest NAV Guaranteed’ plans. These were always a point of discussion. People believed that NAV would at least get double within 3-5 years of investment and they would hence receive the highest NAV which would double the investment in no time. But, the charges and commissions never took the NAV anywhere near to that level.
Conclusion
ULIP’s have definitely become better with these changes. They would yield better returns and also have become more transparent. However, it is still not advisable to invest in policies which mix insurance and investment. Always pick a pure term insurance for protection and choose a mix of deposits, bonds and mutual funds for investment.
Source: InvestmentYogi is one of the leading personal finance websites in India
