Come New Year, minimum investment, tenure for Ulips to rise

The minimum ticket size and the tenure for unit-linked insurance plans (Ulips) are set to be higher from the New Year.

SBI Life has increased the minimum ticket size from Rs 6,000 to Rs 12,000. Likewise, Star Union Daiichi Life Insurance has increased the minimum premium from Rs 12,000 to Rs 18,000. Similarly, the minimum tenure has gone up to 10 years. Similarly, Aegon Religare Life Insurance has increased the minimum premium from Rs 12,000 to Rs 15,000, and has increase the term to 10 years from five years.

"We have done a little tinkering with unit-linked products and brought in some additional features, but tried to retain the basic characteristics," said M N Rao, managing director and chief executive officer, SBI Life.

Maha Anand II was the cheapest Ulip of SBI Life for 5 years. The insurer has increased the minimum tenure to 10 years.

"The ticket size of most policyholders is around Rs 20,000. Those with lower ticket size will move to more traditional products," said G V Nageswara Rao, managing director and CEO, IDBI Fortis Life Insurance.

Insurers argue it is not profitable to sell products with lower tenure and ticket size.

It is likely to have an adverse impact on the commission income of agents. They are likely to see a drop in commission income if they promote short-term products.

"For short-term products, the commission rate would come down," Rao added.

In order to push more long-term products, insurers are trying to push long-term unit-liked plans by giving incentives to agents who sell Ulips with higher tenure.

"We are looking at incentivising bank executives who sell products of longer tenures. Irda's intention behind capping the charges is to make it a long-term product," said Pawan Verma, chief operating officer, Star Union Daiichi Life Insurance.

Under the new regulations, the difference between the gross yield and the net yield is capped at three per cent for policies less than 10 years, and at 2.25 per cent for more than 10 years. The fund management charge at the same time is capped at 1.35 per cent within the overall cap for products below 10 years and at 1.25 per cent for policies of more than 10 years.

Around 240 products were filed again with the Insurance Regulatory and Development Authority (Irda). Insurers will re-launch these products after January 1, 2010. The new products launched after October 1, 2009, had to comply with the changed norms and the old products has to be refiled with the regulator till December 31, 2009.

Since the last quarter accounts for almost 40 per cent of the new business premium income, insurers will rush to launch products refiled with the regulators.