Unit Linked Insurance Plans (Ulips) known for their confusing charge structures and terminologies varying between insurance companies will soon be standardised across insurers.
The move will allow a policyholder to know the premium amount he has lost to an insurer as charges and the internal rate of return (IRR) for every year thereby making Ulips comparable between insurance companies.
Ulips are insurance-cum-investment policies with the premium amount invested in stock market or government securities (debt instruments) as per a policyholder’s choice.
The Life Insurance Council, a self-regulatory body of life insurance companies, has submitted a proposal to the insurance regulator — Insurance Regulatory & Development Authority (IRDA) proposing a standardised methodology for calculating the charges.
“We have proposed that the names of various charges and the way of calculating them should be uniform across insurers,” said SB Mathur, secretary general of the council.
Insurance companies will provide a benefit illustration to policyholders telling them the amount it has deducted as charges towards various expenses and the IRR per year at a rate of 6 per cent and 10 per cent. In addition, insurers will also provide a benefit illustration telling policyholders the returns if there were no insurance charges so that he can compare the returns with a mutual fund.
“Policyholder will know the amount (fund value) he will have in case he exits the policy in a particular year,” said an industry official.
According to the new proposal, the number of charges has been grouped as six main charges. Premium related charge, also known as premium allocation charge, will be charged as percentage of premium by all insurers. Surrender or exit charge has been renamed as withdrawal load and will be charged as percentage of first year premium or amount withdrawn. Insurance charge (charged for life cover and various riders) will be expressed as percentage or per thousand sum at risk. Fund related charge such as fund switch would be as a percentage of fund.