A circular issued by the Insurance Regulatory and Development Authority (IRDA) has stated that come February, life insurance companies have to inform existing and potential policyholders about the details of the amount of annual premia they will deduct towards various charges.

Insurers will have to furnish information about the amounts deducted in a specified format, Table A, and give benefit illustrations in another format, Table B. The second table will show how an investment fund under unit-linked plans (Ulips) will grow over the term of the policy.

The Life Insurance Council had earlier ordered that insurers should show the benefit illustration of their respective Ulips on the basis of two rates of return — 6 per cent and 10 per cent. The companies are already following this.

Until now, policyholders were not told about various deductions made from their annual premia. One would only be informed about how much premia had been allocated for investment through an annual statement.

Ulips have often come under the scanner on various transparency issues. Unlike traditional plans, Ulips come with high charges in initial years, which vary widely from one insurer to another.

Once insurers disclose the details of the amount to be deducted from a policyholder’s premium, the force of competition will help equalise deductible charges across all insurance companies.

The policyholder and the insurance company sales agent will have to sign both Table A and Table B on the day the insurance proposal form is signed.

“These tables shall become part of the policy document and a copy must be sent to the policyholder along with the policy document,” the circular noted.