In a move that aims to make unit linked insurance plans (ULIPs) more transparent, less costly, and to reduce their mis-selling, insurers will incorporate insurance regulator Insurance Regulatory and Development Authority's (IRDA) June 2010 guidelines from tomorrow.
The new guidelines will ensure that the commissions an agent gets from selling an insurance policy are paid uniformly. "The new guidelines will bring down the commissions paid to 5-7 per cent on an average from a high of almost 10-15 per cent earlier," said an industry insider who did not wish to be named.
However this will still be high when compared to no-entry-load in case of mutual fund investments. "We need to end this regulatory arbitrage," the head of a large mutual fund said.
"The costs will certainly go down," said Amar Pandit, a Mumbai-based financial planner. "But investors should see the product structure and understand it clearly before buying one."
ULIPs will now have a lock-in of five years, against three years earlier. This will make the instrument that invests in a mix of debt and equities more long term and help reduce churning of portfolio by agents for want of higher commission in the initial years.
IRDA has also asked insurers to offer a guaranteed return of 4.5 per cent on pension and annuity products. Companies, however, are not very keen on launching products within this segment as offering a guaranteed return is very challenging, insiders say.
"We have already got approval for two products and will be launching more products in the next few quarters under new ULIP guidelines," said Malay Ghosh, president, Reliance Life Insurance.
While the IRDA will approve two ULIP plans for each insurance company, the actual product structure under the new guidelines is yet to be seen.