IRDA may raise ULIP lock-in period: Srcs

Nifty BSE | NSE 10/02/12 Are Mutual Funds betting on Nifty?

The lock-in period for unit linked insurance plans , or ULIPs, could get much longer. There is a silver lining to the possible changes to ULIPs, charges could come down, reports CNBC-TV18's Payal Goel.

 

The three-year lock-in-period on ULIPs may increase even further. The insurance regulator IRDA is considering increasing this period, as a step towards curbing mis-selling in the product.

 

According to sources, IRDA is also looking at various other steps to increase customer awareness and make these insurance cum investment products long-term. The regulator is also contemplating increasing the minimum life cover required for these unit-linked products. Under the present guidelines, a ULIP policy must have a minimum sum assured equal to 50% of the total annualised premium, during the entire policy term or five times the annualised premium, whichever is higher.

 

Besides these, the regulator is also looking at bringing ULIP charges inline with mutual fund charges.

 

60-70% of the ULIP premiums in the first few years are deducted as charges as against 2.25% in the case of mutual funds. Insurance companies say high charges of ULIPs is due to the different cost structure of insurance companies.

 

Unlike mutual funds, most of the ULIP flows are retail. Also, the ticket size of ULIPs is much larger as compared with mutual funds. So, while the charges will not be brought down to mutual fund levels, sources say they could certainly come down to more reasonable levels.

 

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