Thursday, 30 September 2010

IRDA makes ULIPs more attractive to investors

ULIP is a monetary product which can provide you life insurance and also at the same time investments options like a mutual fund. Some of the amount paid as premium would be accounted for the amount promised under insurance policy and the rest would be put in whichever investment is preferred by you. It could be equity or fixed return or a mixture of both.

Recently IRDA (Insurance Regulation and Development Authority) made certain changes to make ULIPs (Unit Linked Insurance Plan) more attractive and beneficial to investors. These changes made the ULIP schemes more popular.  Let us go through the changes and its benefits.

Extended Lock in Period

Earlier the lock in period of ULIP plans is three years. It has been extended to 5 years. Now an investor can withdraw the money from ULIP only after 5 years. By doing so the IRDA ensures the commitment of investor to stay a long time and only those who wish to stay in ULIP for such a long time can enter in the scheme and long period bring them more benefit than short period.

Controlled the expenses charged by the Scheme

The IRDA instructed that the expenses of the scheme must be minimized to 3%. This is the difference between the gross yield and net yield of the scheme. Gross yield is the actual income derived by the scheme and net yield is the balance of income after deducting all expenses such as agents commission, operating expenses etc. Here IRDA controlled the expenses to 3%, that is, the agents commission and all other expenses should not be more than 3% for the products with a tenure is less than 10 years and 2.5 %  for the products more than 10 years. All unwanted expenses and high agent commission are being controlled by these changes.

High Surrender Value

Through this change the insurance company can charge only the client acquisition cost from those who wish to surrender the scheme before the maturity. They cannot charge high surrender charge. So the investor will get a high surrender value than earlier.

Minimum 4.5% guaranteed return of pension fund

This will compel the insurance companies to take minimum risk while handling pension funds. They have to pay a minimum of 4.5% return to ULIP holders. This is beneficial to senior citizens and their money is saved from risky market fluctuations and they can ensure a careful handling of fund.

Can pledge to bank as collateral security to take loan

Now the ULIP holder can pledge his certificate to bank for taking a loan against it. They can avail a loan up to 40% of the NAV (Net Asset Value) of the product. This will save them to surrender the ULIP up to a certain extent.

There should be a minimum insurance cover

It has been made mandatory for all ULIP s to provide at least mortality cover or health cover except for pension and annuity products

With the above mentioned guidelines the IRDA makes ULIPs more investor friendly and hope that this will make happy the investors and will get more from the scheme.

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