Minimum follow-on premium for Ulips at 75%: Irda

The Insurance Regulatory and Development Authority (Irda) has directed that premiums after the first year for unit-linked products must mandatorily be at not less than 75 per cent of the initial year’s premium.

In a notice to all life insurance companies, the regulator said companies that have offered more than 25 per cent reduction in premium over the initial premium, should treat the difference in premium as a single premium.

Additionally, they have also been directed to “claw back” the commission paid to agents and invest it in the policyholder’s account. The diktat is aimed at restricting those companies which bring down premium significantly from the second year onwards, thus giving a regular product the look of a quasi-single premium product.

“The Irda has noticed that the first-year premium payment is very high compared to very low premium paid by the policy holders from second year onwards,” the insurance regulator said in a recent circular.More than 90 per cent of the first-year premiums of insurance companies come from Ulips.

In May 2007, Irda had allowed insurers to reduce the sum assured, provided a minimum sum assured is maintained at all time during the contract.However, now it feels companies are distorting the leeway and the present practice is not in the “spirit of flexibility”. Irda has said all existing products have to conform with the new stipulation from April 1.

In a meeting with appointed actuaries in December, member actuary of Irda R Kannan had sought opinions on rules appropriate to Ulips sold with a premium reduction facility.