IRDA suspends sale of Universal Life policies

The Insurance Regulatory and Development Authority (Irda) has suspended sale of universal life policies (ULPs), which were being promoted as an alternative to unit-linked insurance plans, from October 23.

Sales have been suspended until the final guidelines for ULPs are issued. Irda said it had received several complaints on the sale practices of the insurers regarding ULP. “After examining the complaints, the authority is satisfied that the universal life products need a better regulatory framework for protecting policyholders’ interests,” Irda said.

In a draft issued late evening, the regulator defined the Variable Insurance Product, widely known as universal life policies, as life insurance products that provide death and maturity benefits equivalent to the balance in the savings account.

Under this policy, the regulator has proposed to cap the expenses at 25 per cent in the first year and at 5 per cent from second year onwards. Insurance company sources said the commission to agents may also be capped below 5 per cent.

DRAFT PROPOSALS
* Expenses capped at 25% 1st year onwards, 5% from 2nd year
* Agent commission may fall below 5%
* Single premium products under ULPs to be banned
* Minimum policy term to be 5 years
* Lock-in of 3 years
* No top-up premium, riders allowed
* To follow investment norms under traditional policies

Moreover, single-premium products under ULPs will not be allowed.
Like unit-linked insurance plans, the minimum policy term will be five years, with a minimum life cover of 10 times for those below 45 years of age. Above 45, the life cover will be seven times. The lock-in under the draft is kept at three years. Also, insurers will not be allowed to collect top-up premium or offer riders with ULPs.

Insurance companies like Reliance Life and Max New York Life have launched these products as a combination of Ulips and traditional plans. Now, they have to follow the investment norms of traditional policies. Under this product, however, the policyholder will have the flexibility to change the policy term as well as the minimum sum assured.

Insurers will have to show the premium separately as risk premium, expense, commission and savings components.

Also, the draft has proposed that the policyholder will have 12 months to revive the policy from the date of first unpaid premium, while the life cover will cease.

Similarly, the benefit paid on death and maturity will be comparable to Ulips. The balance in the savings account will be paid at the time of maturity. On death, the sum assured chosen by the policyholder, along with the balance in the savings account will be paid.

Irda Chairman J Hari Narayan had said ULPs were the next focus area for the regulator as they wanted only fair products to be sold. Last week, insurance companies expressed their concern over capping of charges in ULPs, as agents did not push products with lower fees.