Ulips can't be promoted as pure investment tool without mention of life cover element: IRDAI

IRDAI's new rules on market-linked policies' promotions bar insurers from marketing them as pure investment products

In what appears to be a clampdown on some life insurance companies’ attempts to promote their unit-linked insurance policies (Ulip) as pure investment products, the Insurance Regulatory and Development Authority of India (IRDAI) has issued a diktat barring insurers from issuing advertisements without references to the embedded life cover element.

Moneycontrol has, in the past, highlighted this practice which could potentially mislead retail investors.

Throughout 2023-24, life insurers launched new fund options - specifically small-cap and mid-cap funds to capitalise on the demand for the segment - under their existing Ulips. However, the term ‘insurance’ was conspicuous by its absence in several advertisements, leaving scope for lay individuals to misinterpret these products as mutual fund schemes.

To be sure, even the existing IRDAI Insurance Advertisements and Disclosure Regulations, 2021, label insurance advertisements that fail to "clearly identify the product as insurance in any insurance advertisement" as unfair or misleading. However, the new master circular has a more detailed list of do's and don'ts for insurers.

More prominence to life cover in Ulip advertisements

“All insurers shall advertise the launch of unit-linked funds or index-linked funds under existing insurance products or new insurance products, only with reference to the underlying life insurance coverage and the products associated with it. Further, no press release or statement shall be issued by the insurer without making a reference to the life insurance coverage and the associated products,” the IRDAI said in a master circular issued on June 20.

It has directed insurers to not promote unit-linked or index-linked plans as investment products. Insurers will have to specifically state that market-linked insurance plans are different from traditional endowment policies and carry risks. Likewise, participating (with bonus) endowment policies will have to state upfront that the bonusses projected in benefit illustrations are not guaranteed.

It has also asked insurers to reduce the emphasis on past performance of Ulip funds in the advertisements. The insurance regulator has stipulated a template for reporting the returns track record:

- Compounding annual returns (shall adopt standardised computations) for the previous five calendar years, expressed as a percentage rounded to the nearest 0.1 percent.

- In the cases where last five calendar years’ data is not available, as many years as possible must be shown.

- It shall clearly state in the same font and size that the past performance is not necessarily indicative of future performance.

- Corresponding benchmark index performance, if any, must be included.

Also read: Small-cap fund, SIP, NFO…. Is that insurance or mutual fund? Here's how to avoid being mis-sold investment products

Unclaimed amounts rules streamlined

Life insurance companies cannot appropriate any part of the unclaimed amounts, which are payable to policyholders but have remained unpaid beyond 12 months due to variety of reasons, including lack of contact with policyholders, policy in question being under litigation, multiple claimants, government action leading to freezing of the plans and so on.

It has reiterated the rules that were put in place in 2014 – insurance companies are required to provide searchable databases on their websites to help policyholders or their nominees ascertain unclaimed amounts due to them. Insurers have to enable policyholders or their nominees to look up the information using details such as policy number, policyholder’s name and date of birth, policyholder’s PAN and so on. Insurers will have to update this data as on March 31 and September 30 every year.

Also read: Shares worth Rs 25,000 crore lie unclaimed: Here's how you can reclaim your lost investments

Insurers have to transfer unclaimed amounts dating back to more than 10 years as on September 30 every year to the Senior Citizens’ Welfare Fund (SCWF) on or before March 31 every year. Even after such transfers, policyholders will be able to claim back their dues up to 25 years from the date of transfer to SCWF. After this period, the unclaimed amounts will be handed over to the central government.