Ulip

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Ulip
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New product regulations A better proposition for
customers
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• The changes included increasing the insurance
  cover, introducing charge caps and lowering
  surrender charge, making them more transparent
  and cost efficient for customers. This time, the
  focus is on reforming traditional products and
  finessing some of the issues with ULIPs. The
  Regulator has also for the first time provided a
  detailed definition and salient features for
  each category of conventional product.
• So what are those key changes that were brought
  about on the conventional side and why will they
  prove to be better proposition to the customer?
• First key change is that products will offer a
  higher minimum sum payable on death. For regular
  premium products purchased by policyholder of age
  less than 45 years, it will be higher of 10 times
  the annualised premium or 105 of all premiums
  paid on date on death or minimum guaranteed sum
  assured on maturity, or any absolute amount to be
  paid on death. For those with age more than 45
  years it will be 7 times the annualised premium.
  The minimum death benefit for single premium
  policies will be higher of 125 of the single
  premium, or minimum guaranteed sum assured on
  maturity, or any absolute amount to be paid on
  death.
• For those with age more than 45 years, it will be
  110 of the single premium. The minimum death
  benefit has been broadly aligned to that of ULIPs
  as outlined in the 2010 ULIP regulations.

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• Consequently, the product structure dictates a
  higher level of protection to the policyholder
  meeting the objective of a life insurance
  product. Similarly the minimum level of
  protection has to be offered in single premium
  plans.
• Secondly, IRDA has asked insurers not to offer
  fund level guarantee in their products, which
  means withdrawal of the popular 'Highest NAV'
  product. The regulator's argument was that such
  products do not provide the transparency in terms
  of underlying fund's investments and strategy,
  which may set unrealistic expectation in the
  minds of customer leading to mis-communication to
  the customers on returns.
• Existing traditional plans with benefit linked to
  any external index will be categorized into a new
  Variable Insurance Products category, which will
  follow a charge cap regime similar to ULIP, thus
  making existing products significantly less
  attractive from the companys perspective. The
  reason for this change is to bring clarity to the
  product structure and align the charges to that
  of ULIPs.
• Guaranteed surrender values of traditional plans
  for the customers haves been defined and
  increased substantially.
• First year commission payable has been pegged to
  the term of the policy i.e. in case of regular
  premium insurance policies,

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• policy with a premium paying term (PPT) of five
  years will not pay more than 15 in the first
  year, 7.5 in the second and third year and 5
  subsequently.
• Products with PPT of 12 years or more will have
  first year commissions up to 35 in case the
  company has completed 10 years of existence and
  40 for the company in business for less than 10
  years. This has been done by the Regulator to
  encourage long-term selling by the insurers.
• The new regulations are radical and nudge the
  industry in the right direction. The objective is
  to continue to deliver a better value to the
  customer, build their trust and at the same time
  attempt to ensure long-term sustainability of the
  industry. In the short term, the changes will
  cause a degree of discomfort for both the
  industry and distributors - lower margins, lower
  commissions, imperative to sell long tenor
  products, complete relaunch of almost every
  product and training involved and the time it
  will take to adjust to this change. As a result,
  as an immediate effect, insurers might see a
  short term dip in new business some might be
  even forced to rethink their business models due
  to challenges in maintaining growth and
  profitability. In the long term the changes will
  lead to a more stable, transparent and customer
  focussed product regime this can only lead to
  improving the prospects of the industry.

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