IRDA puts cap on ULIP charges

The Insurance Regulatory and Development Authority (IRDA) has prescribed caps on the overall charges that life insurance companies can levy on subscribers of their Unit Linked Insurance Policies (ULIPS).

This cap is expressed in terms of the difference between the gross and net yield to the customer. The net yield is the gross yield adjusted for all charges, an IRDA release said.

For insurance contracts which are of a tenor of less than or equal to 10 years duration, the difference between gross and net yields shall not exceed 300 basis points, of which fund management charges shall not exceed 150 basis points. For other contracts, ie, those whose contract period is above 10 years, the difference between gross and net yields shall not exceed 225 basis points, of which the fund management charges shall not exceed 125 basis points, IRDA said in its release.

Almost all insurance companies have various ULIPs and under each product there are various charges, which are recovered from the contribution or from the fund value.

IRDA said this would enable the customers to have a clear understanding of the product and to comprehend various features of ULIPs. This will also impart flexibility for the insurers and encourage further product innovation.

"Insurance products are long term saving vehicles and the policy prescriptions should help the customers' to move towards long-term savings cum protection rather than short term one," IRDA said.