The Telegraph
Since 1st March, 1999
Email This Page
Unit-linked plans face exit curbs

New Delhi, April 21: The insurance regulator plans to slam the brakes on the indiscriminate sale of unit-linked insurance plans (Ulips) by imposing a lock-in period that will stop investors from flitting in and out of schemes to skim quick returns from a volatile market.

Ulips have been a tearaway success since they premiered less than two years ago. But there have been howls of protests from mutual funds and conservative insurers who feel that Ulips are being aggressively marketed as an investment avenue rather than an insurance product.

'Life insurance is a long-term product. Short-term exit is not possible. The guidelines will deal with this aspect,' said a senior IRDA official.

The Insurance Regulatory and Development Authority (IRDA) is mulling the option of setting a well-defined ceiling on the premia amount that can be earmarked as the insurance and investment components.

'Some Ulip plans have extremely inadequate portion dedicated to a life cover. We are working on certain parameters, which may be used by insurance companies across the board to determine the weightage given to the insurance cover,' said the official.

The regulator was alarmed when it found that a large number of high networth investors were exiting from Ulips after parking their money for as little as 15 days.

The IRDA official said the traditional insurance endowment policy carries a clause spelling out a minimum lock-in period of three years.

According to the regulator, the insertion of a similar 'time stipulation' in the case of Ulips will stop investors from making quick short-term gains.

However, an official of a life insurance company, which earns more than 90 per cent of its premium income from Ulips, argued that 'it will be unfair on the part of the regulator to disallow us access to money by putting in such a clause.'

'It will be advisable for the IRDA to put in a penalty clause on early exit, while giving the genuine investor the option of using his hard-earned money when he needs it the most,' he added.

Some private insurers have accused their rivals in the industry of resorting to 'mis-selling practices' to push the product.

'In order to meet the sales deadline for the year, a few insurers in the recent past have sold Ulips by linking it to low-interest loans that the insured could take from their banking arms,' said an industry insider on condition of anonymity.

Email This Page