The insurance regulator IRDA is set to raise the lock in period for Unit LinkedInsurance Plans (ULIPs) to 5 years from 3 years, even as it has
tweaked the cap on ULIP charges to ensure a higher yield for investors.
A longer lock in period for ULIPs, one of the hottest investment products, is meant to promote long term investments. But insurers apprehend that retail investors could divert their money into mutual funds.
Retail investors of Ulips could see a 180 basis point rise in their yields, with changes in computation of the cap on ULIP charges.
The IRDA has excluded mortality and morbidity charges from the cap and fixed fund management charges at 135 basis points for all insurance contracts, irrespective of their tenure. It has also prohibited insurers from levying surrender charges after the 5th year.Insurers have, however, been banned from levying surrender charges from the 5th year.
Initially, all charges were included in the cap. ULIP charges -- excluding mortality and morbidity charges -- will now be capped at 300 basis points for insurance contracts up-to 10 years and 225 basis points for contracts over 10 years, said R Kannan, Member Actuary IRDA.
he ceilings will come into force from October this year. Hence if a fund earns a yearly return of 15%, a policy holder has to get a minimum return of 12%.
Currently, ULIP charges on an average work out to around 375 basis points. As most products have an average tenure of around 13-15 years, the return to the policy holder could go up by 180 basis points. The commission paid to agents is also set to drop.
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