IRDA Issued Guidelines for Insurance Companies

The insurance regulator, IRDA in November 2010 allowed insurance companies to sell universal life plans on the basis of new guidelines. By introducing the new guidelines for the insurance, IRDA attempted to plug the loopholes earlier used by insurers to indulge in regulatory arbitrage. The new guidelines mentions that insurers would have to offer a guaranteed return if the policy terms do not entitle the insured to receive a bonus. The guidelines laid down by IRDA are as follows-

•    The new guidelines specified that universal life plans have to be called 'variable' insurance policies. The regulator with regards to life ULIPs, imposed a cap on charges as well as the minimum surrender value that the insured is entitled to.
•    According to the guidelines, if a policy is surrendered in the first three years, the policyholder is entitled to receive the balance in the policy account as on the date of the surrender which will be paid out after the lock-in period. The policyholder is eligible for 98% of the policy balance available in his or her account in case the policy is surrendered in the fourth or fifth policy year. If the policy is surrendered after the fifth year the balance in the policy account has to be paid out immediately
•    The maximum expenses that can be charged to the premium paid by the policyholder in the first year were capped at 27.5% of the first-year premium. For the second and third-year premium, the cap is 7.5% and 5% on subsequent years.
•    If the policyholder decides to increase his contribution through a one-time top-up, the insurance company can deduct at most 3% from the top-up by way of charges.

The new norms require that death benefit equals the guaranteed sum assured, plus the balance in the policy account. If the insured is alive when the policy matures he will get whatever the balance is under the policy account, plus any terminal bonus.