IRDA, the regulator I have torn into over ULIPs, has started to get investor friendly. And how! The latest piece is a notification for early surrender.
If you stop payment on your policy – regardless of when you do so – your policy will be considered “discontinued”. An insurer can contact you to continue the policy within 30 days of the premium date, but should you not respond, the policy is considered discontinued.
Then, the fund value is frozen in the account, and paid out only after the “lock-in” period, which is a minimum of 5 years from the start of the policy. The money earns 3.5% in the interim. They can deduct a maximum of Rs. 6,000 as charges for such “surrender”.
Plus, there no such charges on top ups or single premium policies.
This compares very well to current norms where insurers charge even 100% of the fund value as surrender charges. Awesome.
This is effective immediately, only for new products issued from now on. That means older products will still have onerous surrender charges.
Mint reports this screws up Insurance companies:
The insurance regulator’s move to cap surrender charges on unit-linked insurance plans, or Ulips, will hurt life insurers where it hurts the most. Insurers’ income could drop by as much as half because of the move, which may require them to infuse more capital and delay their break-even, industry executives and experts say.
When half their business depends on customers discontinuing their policies, what can you say?
This is a sea change in IRDA – a clear choice they have taken in the investors benefit while forcing the business providers (insurers and agents) to rethink business plans. Much required, and I’m sure, much appreciated.
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>So this would make ULIP a good way to invest?
07.14.10 at 4:42 AM
>A better way, no doubt. I am eagerly waiting to compare the post Sep 1 policies to the ones currently being sold.
07.14.10 at 5:30 AM
>Maybe SEBI deserves some credit for all the pro-consumer regulations coming out from IRDA. If not for the "turf war", perhaps none of these changes might have taken place!
07.14.10 at 5:54 AM
>"When half their business depends on customers discontinuing their policies, what can you say? "
Good one liner which sums up the malpractices adopted by the insurance industry. Credit for these so-called insurance reforms should go to SEBI, not to IRDA.
"A better way, no doubt. I am eagerly waiting to compare the post Sep 1 policies to the ones currently being sold."
Comparing pre-Sep & post-Sep policies of the insurance industry doesn't make sense. Post-Sep policies of insurance & other avenues of investment could be compared.
But, I would like to stick with the oft repeated statement, that it is better to separate insurance & investment.
07.14.10 at 6:02 AM
>dear all !
this is a visible victory of SEBI over IRDA.
wonder whats wrong to register ulips with sebi, having more experience than irda.
very few people can know how recruitment and make them to get a licence of these very fancy names like FINANCIAL PLANNING ADVISORS etc..
thanks sebi for your courage to make things public.
07.19.10 at 5:29 AM
>What about the old policy holder of ULIP who have already taken ULIP and want to surrender in 3 years. Can they surrender after 3 years as they had purchased this ULIP before this decision of 5 years.
09.28.10 at 6:09 PM
>How are policies issued before 01-09-10 affected? will they also be governed by new regulations? Any policy issued say in Dec 2008 on which only 1 annual premium is paid, whether will be eligible for this refund of premium under these regulations?
11.22.10 at 6:35 AM