Cap on ULIP charges: An analysis

On June 22, the regulator said it will be capping ULIP charges. CNBC-TV18 learns that only certain charges including the commissions are likely to come under this cap. The three components of ULIP charges which include your commissions, the premium allocation, and the fund management charges will all be capped. What is the structure likely to be? CNBC-TV18's Avni Raja reports.

Here is a verbatim transcript of Avni Raja's comments on CNBC-TV18. Also watch the accompanying video.

The three components of ULIP charges which include your commissions, the premium allocation and the fund management charges will all be capped. This is important because currently there is a lot of disparity among the chart structure for ULIP products. For example a premium allocation charge could still range between 5-60% so right now  Insurance Regulatory and Development Authority (IRDA) is considering keeping the mortality and surrender charges out of this cap. That is because the mortality charges could vary for people depending upon their age as well as the surrender charges again does not apply to most of the policy holders. The extra charge that applies for the guarantee products will also be kept out of the cap that is because the different methods that companies provide the guarantee for these products and therefore the regulator feels that this should also not be included in the cap. All other charges like switching, partial withdrawal and policy servicing charges will be capped. This will really make it easier for investors to compare the different products; ULIP products that are available and the regulator also told us that the final chart structure will be ready in another 10-15 days.

Also Read: IRDA to standardise ULIPs, put cap on charges