Risk cover to double on Ulips

While deciding the battle over regulating unit-linked insurance plans in favour of the Insurance Regulatory and Development Authority, the Union finance ministry has asked for some changes in the investment-cum-insurance products, including a life cover of 10 times.

At present, Ulips have a minimum risk cover of five times. This means a Rs 50,000 life cover for investing Rs 10,000 in an insurance policy.

"The ministry has asked us to bring in certain changes while ruling the matter in our favour. After the proposed changes, the risk cover will go up substantially," said a senior Irda official.

In addition, the ministry has recommended capping of overall charges and of the surrender charge.

Irda had already capped the overall charge on Ulips from January 1 and was in the process of putting a ceiling on charges in the middle of the policy term.

It will soon issue new guidelines on the surrender charge.

Further, the ministry asked Irda to be careful while clearing Ulips.

"They have suggested a minimum life cover should be Rs 100,000. Also, they mentioned a minimum guarantee with pension plans," the official added.

After the battle over Ulips between Irda and the Securities and Exchange Board of India (Sebi) broke out on April 9, Irda had been tightening the norms for this controversial product.

Recently, it made a life cover mandatory with pension plans.

Similarly, the minimum term of a policy was increased to five years from the earlier three years.

Industry experts said though the ruling is in favour of Irda, the capital markets regulator has succeeded in making its point. Sebi's contention was that Ulips have a very low insurance element.

It also said there was no life cover with a pension plan.

"Ulips are going to be all the more attractive now. The tussle has been good for the policyholders," said a senior executive of a life insurance company.

On Friday, the Union law ministry had issued an ordinance amending the RBI Act, 1934; the Insurance Act, 1938; the Sebi Act, 1992, and the Securities Contract Regulations Act, 1956, to say the life insurance business would include any unit-linked insurance policy or scripts or any such instruments.

On April 28, after Sebi said it wouldn't be filing a joint application with Irda to the courts to rule on the issue, the ministry was asked to work on the matter.

Around 230 Ulips by 23 life insurance companies would be re-filed with Irda after the new norms are in place.

"After the risk cover goes up, though the premium will remain the same, the investible amount will come down to provide for the extra cover," said Future Generali's Appointed Actuary, G N Agarwal.