Minimum investment in Ulips to go up

Insurers to raise threshold to give returns prescribed by Irda.

The minimum ticket size for unit-linked insurance plans (Ulips) is set to go up from next month.

Insurance companies plan to raise this to match the returns prescribed by the regulator. For instance, the second largest life insurer, SBI Life, is likely to increase the minimum ticket size from Rs 1,200 to Rs 1,500.

“Policies with low ticket sizes will be difficult to service on a monthly mode. Insurers will increase the ticket size to offer the charges prescribed in the new regulation,” said SBI Life’s Chief Financial Officer Abhijit Gulanikar.

Similarly, Bajaj Allianz is going to increase the minimum ticket size from Rs 5,000 to Rs 10,000 in the revised products.

“At present, we will get approval for two products with a premium of Rs 25,000. One is on a regular premium mode and the other on a single premium basis. It is looking very tough to continue products with premium (investment) lower than Rs 5,000,” said Bajaj Allianz Life Insurance’s Managing Director and Chief Executive Officer, Kamesh Goyal.

The regulator is going to approve two products each of all 23 life insurance companies before August 31. It will take time to approve all the 270 products re-filed with it. Insurers have tweaked and restructured the existing products to meet the new norms, which will be effective from September.

“As the cost will be higher for all policies, irrespective of the premium paid, it will be difficult to manage policies with lower ticket sizes,” said IDBI Federal Life Insurance Managing Director and Chief Executive Officer, G V Nageswara Rao.

Irda has capped the difference between the gross and the net yield at four per cent in the sixth policy year, which goes down to three per cent in the 10th year. Earlier, the regulator had capped the differences at the end of maturity.

To ensure policies remain in force for a long term, insurers are also talking about increasing the commission on renewal premium. Companies are going to lose money if the policies are surrendered before the term matures.

Insurers had increased the minimum tenure of Ulips during the last phase of the regulatory changes, which were effective from January this year. In addition, Irda has increased the lock-in period from three to five years in the new guidelines.

The recent changes were triggered by the war between Irda and the equity market regulator. While resolving the dispute in favour of the insurance regulator, the finance ministry asked Irda to bring in a few changes.