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| Insurance regulator likely to allow Universal Life Policy |
| T E Narasimhan / Chennai Mar 31, 2009, 00:51 IST |
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The Insurance Regulatory and Development Authority (Irda) may allow life insurers to introduce ‘Universal Life Policy’ (ULP), which is more like a passbook scheme, in India.
The policy will give an option to customers to change the policy amount even after buying a policy for a different amount. The regulator is currently studying the UK model, which is at the forefront in this segment.
“We might come out with some guidelines for this in May 2009,” Irda member R Kannan said. Speaking to Business Standard, he said that the ULP will give flexibility to customers in terms of both the premium paid and the sum assured.
“It will be more like a passbook scheme,” he added. Customers who may not be able to continue paying for the policy due to other pressing expenses would, through ULP, get the flexibility of changing the policy amount even though they may have opted for a different amount.
According to a case study conducted in the UK, the ULP policy also allows flexibility in terms of the amount of death benefits. The policyholder is free to change them at his convenience. The policy also provides lapse protection, which ensures that the policyholder will continue to enjoy the benefits as long as he pays the premiums regularly. Even if it does not have the provision of lapse protection, the maturity amount will be paid in the event of death after deducting the money borrowed.
The insured is also at liberty to make his choice as far as the timing of the premium payments is concerned. He can either pay the premium at regular intervals, or in one stroke. However, he cannot change the amount of premiums to be paid. In other words, he cannot pay less or more than the prescribed limits. His dependents will not be able to enjoy the death benefits if he fails to pay the premiums.
Another notable feature of this policy is that it does not get automatically cancelled even if the customer fails to pay the premiums. The underlying condition is that the premiums paid till date should be sufficient enough to meet the policy requirements till then.
The insurance company not only allows the policyholder to choose the premium payments, but also gives him a choice in choosing the protection limits. If the policyholder feels that he requires more or less protection, he can alter the policy accordingly.
The customer can even reduce the amount in case he wants to meet other financial commitments. He can also increase them once he is in a position to meet the payments. In case he decreases the amount, the insurer will follow a different procedure of applying a surrender charge against the policy’s cash value.
ULP also helps the policyholder in raising finances by allowing him to borrow money from the insurer in the form of surrender value and loans. There are two types of benefits in the case of the customer’s death in ULP. When a person invests in this policy the increase or decrease of his cash value does not influence the policy amount.
Moreover, when there is an increase in cash value, the insurance company creates an extra insurance policy for the increased amount, according to the case study.
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