Insurance Regulatory and Development Authority (IRDA) has announced new guidelines for ULIPs. These regulations are applicable to all new ULIPs approved by IRDA after these regulations are notified.

IRDA has increased the lock-in period for all ULIPs from three years to five years, including top-up premiums, thereby making them long term financial instruments which basically provide risk protection.

All regular premium / limited premium ULIPs are to have uniform/ level paying premiums. Any additional payments shall be treated as single premium for the purpose of insurance cover.

Charges on ULIPs are mandated to be evenly distributed during the lock in period, to ensure that high front ending of expenses is eliminated.

All limited premium ULIPs, other than single premium products, shall have premium paying term of at least five years.

All ULIPs other than pension and annuity products shall provide a mortality cover or a health cover thereby increasing the risk cover component in such products.

The Minimum Sum Assured should be as follows:

For age at entry of below 45 years:

Single Premium (SP) contracts:  125 per cent of single premium.

Regular Premium (RP) including limited premium paying (LPP) contracts: 10 times the annualised premiums or (0.5 X T X annualised premium) whichever is higher.  At no time shall the death benefit shall be less than 105 per cent of the total premiums (including top-ups) paid.

For age at entry of 45 years and above:

Single Premium (SP) contracts:   110 per cent of single premium

Regular Premium (RP) including limited premium paying (LPP) contracts: seven times the annualised premiums or (0.25 X T X annualised premium) whichever is higher.  At no time the death benefit  be less than 105 per cent of the total premiums (including top-ups) paid. (In case of whole life contracts, term (T) shall be taken as 70 minus age at entry)

The minimum Health cover per annum should be as follows:

For age at entry of below 45 years:

Regular Premium (RP) contracts: Five times the annualised premiums or Rs one lakh per annum  whichever is higher,

At no time shall the annual Health cover be less than 105 per cent of the total premiums paid.

For age at entry of 45 years and above:

Regular Premium (RP) contracts: Five times the annualised premiums or Rs. 75,000 per annum whichever is higher.

At no time shall the annual Health cover  be less than 105 percent of the total premiums paid

All ULIP pension/annuity products shall offer a minimum guaranteed return of 4.5 per cent per annum or as specified by IRDA from time to time. This will protect the life-time savings of the pensioners from any adverse fluctuations at the time of maturity.

With a view to smoothening the cap on charges, the capping has been rationalised to ensure that the difference in yield is capped from the fifth year onwards. This will not only reduce the overall charges on these products, but also smoothen the charge structure for the policyholder.

IRDA has also addressed the issue of discontinuance of charges for surrender of ULIPs. The IRDA (Treatment of Discontinued Linked Insurance Policies) Regulations brought in this regard ensure that policyholders do not get overcharged when they wish to discontinue their policies for any emergency cash requirement.

The Regulations stipulate that an insurer shall recover only the incurred acquisition costs in the event of discontinuance of a policy and that these charges are not excessive.

The discontinuance charges have been capped both as a percentage of fund value and premium and also in absolute value. The Regulations also clearly define the grace period for different modes of premium payment. Upon discontinuance of a policy, a policyholder shall be entitled to exercise an option of either reviving the policy or completely withdrawing from the policy without any risk cover. Further, the regulations also enable IRDA to order refund of discontinuance charges in case they are found excessive on enquiry.

Insurance Regulatory and Development Authority (IRDA) has announced new guidelines for ULIPs. These regulations are applicable to all new ULIPs approved by IRDA after these regulations are notified.Lock in Increased to Five YearsIRDA has increased the lock-in period for all ULIPs from three years to five years, including top-up premiums, thereby making them long term financial instruments which basically provide risk protection.Level Paying PremiumsAll regular premium / limited premium ULIPs are to have uniform/ level paying premiums. Any additional payments shall be treated as single premium for the purpose of insurance cover.Even Distribution of ChargesCharges on ULIPs are mandated to be evenly distributed during the lock in period, to ensure that high front ending of expenses is eliminated.Minimum Premium Paying Term Of Five YearsAll limited premium ULIPs, other than single premium products, shall have premium paying term of at least five years.Increase In Risk ComponentAll ULIPs other than pension and annuity products shall provide a mortality cover or a health cover thereby increasing the risk cover component in such products.The Minimum Sum Assured should be as follows:For age at entry of below 45 years: Single Premium (SP) contracts:  125 per cent of single premium.Regular Premium (RP) including limited premium paying (LPP) contracts: 10 times the annualised premiums or (0.5 X T X annualised premium) whichever is higher.  At no time shall the death benefit shall be less than 105 per cent of the total premiums (including top-ups) paid.For age at entry of 45 years and above:Single Premium (SP) contracts:   110 per cent of single premiumRegular Premium (RP) including limited premium paying (LPP) contracts: seven times the annualised premiums or (0.25 X T X annualised premium) whichever is higher.  At no time the death benefit  be less than 105 per cent of the total premiums (including top-ups) paid. (In case of whole life contracts, term (T) shall be taken as 70 minus age at entry)The minimum Health cover per annum should be as follows:For age at entry of below 45 years: Regular Premium (RP) contracts: Five times the annualised premiums or Rs one lakh per annum  whichever is higher,At no time shall the annual Health cover be less than 105 per cent of the total premiums paid.For age at entry of 45 years and above:Regular Premium (RP) contracts: Five times the annualised premiums or Rs. 75,000 per annum whichever is higher. At no time shall the annual Health cover  be less than 105 percent of the total premiums paidMinimum Guaranteed Return for Pension ProductsAll ULIP pension/annuity products shall offer a minimum guaranteed return of 4.5 per cent per annum or as specified by IRDA from time to time. This will protect the life-time savings of the pensioners from any adverse fluctuations at the time of maturity.Rationalisation of Cap on ChargesWith a view to smoothening the cap on charges, the capping has been rationalised to ensure that the difference in yield is capped from the fifth year onwards. This will not only reduce the overall charges on these products, but also smoothen the charge structure for the policyholder.Discontinuance of Charges:IRDA has also addressed the issue of discontinuance of charges for surrender of ULIPs. The IRDA (Treatment of Discontinued Linked Insurance Policies) Regulations brought in this regard ensure that policyholders do not get overcharged when they wish to discontinue their policies for any emergency cash requirement. The Regulations stipulate that an insurer shall recover only the incurred acquisition costs in the event of discontinuance of a policy and that these charges are not excessive.  The discontinuance charges have been capped both as a percentage of fund value and premium and also in absolute value. The Regulations also clearly define the grace period for different modes of premium payment. Upon discontinuance of a policy, a policyholder shall be entitled to exercise an option of either reviving the policy or completely withdrawing from the policy without any risk cover. Further, the regulations also enable IRDA to order refund of discontinuance charges in case they are found excessive on enquiry.