LifeInsurance Products

New LifeInsurance products,

Rules Rediscovered

It had been almost a free market for Unit Linked Insurance Policies until now. But with new guidelines coming in to force, life insurers and customers will have to start redoind their math.

Unit-Linked Insurance Products (ULIPs) have been the hottest selling insurance products lately. Thanks to rising equity markets and the lure market linked, ULIPs are on the investment horizon of almost everyone thinking of an insurance policy. Trandparency has been an issue with these products and it came to the notice that some of the ULIPs were being sold as short term products. There is little clarity on the various charges that these products lavy and we have been writing extensively about the charges in these products are very high

To begin with there has to be a well-defined death benefit. For a single premium product, the death benefit should be atleast 125% of the single premium paid. For regular premium product the death benefit should be the higher of 5 times and annualized premium or 0.5*term of the policy*annualized premium. This has been introduced as it was always felt that ULIPs did not provide adequate insurance protection and that goes against the concept of an insurance plan.

While all insurance companies are still studying the impact of the guidelines in great detail, it is clear that these guidelines will make a major impact on two accounts. first in the charge structure and second is the sum assured. The guarenteed sum assured will have more of an impact on whole life ULIPs and not so much on endowment ULIPs.

So now based on these new guidelines, profitability of these products will have to be reworked. so will the charge structure. this is because while one ULIP lavy' s a monthly administration charge, the other has an annual administration charge. The allocation rates that these ULIPs charge upfront are also not standard. Now all these charge will have to be uniform and therefore the cost structure of these ULIps will have to be reworked. Guidelines also state that all insurance advisors selling ULIPs should be well trained and that all ULIPs should have clear and well stated disclosures about all aspects. These change will definitely ensure that ULIPs are not sold in a improper way and that investers have a clear picture of the kind of risks they are going to take and what can they expect in return.