Ulips to turn costlier after new Irda fiat

KOLKATA: Prices of unit-linked insurance policies (Ulips) are set to rise, thanks to a clarification issued by Insurance Regulatory Development Authority (Irda) on lapsed policies. Irda has stipulated that if a unit-linked policy lapses during the first three years, the policyholder will be entitled to a surrender value at least from second year onwards, which will become payable only at the end of three years. In case the policyholder expires during the first three years for such lapsed policies, insurers will have to be paid a death benefit that will at least be equal to the fund value. The cash value of an insurance contract, also called the surrender value, is the cash amount offered to the policyowners’ by the insurer in case a policy lapses. Fund value is the amount of money accrued to the policyholder after deducting management expenses. “Guidelines introduced by Irda in July 2006, stipulated that once a policy lapsed there could not be any payouts. A policy lapses if any of the policies are not paid in the first three years,” Sudipto Ghosh, manager, KPMG — advisory services told ET. Explaining the impact, Sam Ghosh, CEO, Bajaj Allianz Life Insurance, said, “On an average as much as 25-30% of unit-linked policies lapse for the industry. The funds from the lapsed policies are supposed to go to the shareholders’ funds after a period that is yet to be notified by Irda. In any case, currently, we are holding such funds indefinitely and they are invested along with the other policyholders’ funds.” “Now that Irda has asked us to pay off the surrender value or the fund value, this is likely to affect the policyholders’ funds because these will get withdrawn from the fund which will deplete by an equal amount. It will also affect bottomline as well as the shareholders’ funds as it will now be withdrawn and companies will not be allowed to retain them,” he added.“While designing policies and their profitability, actuarial take it for granted that a certain percentage of policies sold will lapse within the first three years. Profitability of companies with large lapse ratio may actually be significantly affected as a result of this Irda clarification. Hence, these insurers may revise their prices for Ulips,” said an insurance analysts with a private insurers.

Source: DEBJOY SENGUPTA(TIMES NEWS NETWORK)