Irda begins review of Ulips

Move to increase transparency and understanding of unit-linked products.

The Insurance Regulatory and Development Authority (Irda) is in the process of reviewing the entire range of unit-linked products (Ulips) that are being sold by life insurance companies.

According to R Kannan, member (actuary), Irda, the review aims at increasing dissemination of information and understanding of Ulips and improving transparency. The customer should have an idea of the risks and returns on such policies when they subscribe to them, he added.

This assumes significance since the Irda had recently directed phasing out of all actuarial-funded Ulips, where the charge structure is complex for policyholders to comprehend.

The Irda has clarified that the phasing out of such actuarial-funded Ulips is prospective and that the commitments to existing policyholders would be honoured as per contractual obligations.

Meanwhile, companies like Aviva and Bajaj Allianz, which are the prominent players in the actuarial-funded Ulips, have been asked to modify their Ulip schemes and apply to the Irda on a priority basis for approval.

The review of Ulips is aimed at ensuring transparency of costs and benefits to customers, and commission paid to agents for distributing such instruments.

"The idea is to ensure that the insurance companies sell long-term products with long-term benefits," said the official.

The lack of understanding of Ulips has remained a problem for customers. Earlier this year, the Irda had clarified that the policyholders in a unit-linked scheme can remain invested in the policy for another five years after maturity but cannot withdraw any amount or switch funds - equity or debt - or engage in fund management activity.

The decision to continue with the scheme after maturity will purely be the option of the policyholder. The objective was to ensure that the insurance company does not act as a fund manager, and only provides the option of a better NAV to the policyholder.