| Features |
ULIP
(Before Sept. 01, 2010) |
Avatar ULIP
(After Sept. 01, 2010) |
Implications |
| 1. Minimum Sum Assured |
5 times of the annual premium amount |
10 times of the annual premium amount |
It will enhance the risk cover for the policyholder but it will lead to increase in mortality charges as well |
| 2. Agent’s Commission |
No disclosure of agent’s commissions |
Compulsorily disclosure of agent’s commission in benefit illustration of a policy |
Commission disclosure will help policyholders to get information about how much of his premium amount will be contributed towards payment of agent’s commission |
| 3. Guaranteed Returns |
Nil |
Guaranteed returns on unit-linked pension plans @ 4.5% |
The minimum guarantee rate certainly holds economic sense. However, this may actually make it costlier (in terms of the premium paid) for the buyers of such products. Moreover, actuaries at life insurance companies may find it difficult to manage long-term guarantees because there are not many long-term investment options available. Presently, the longest maturity government bond has tenure of 30 years.
Moreover, the guaranteed rate is very low as compared to other fixed income instruments like PPF, Bank FDs which will fetch higher returns |
| 4. Upfront Charges |
High in initial 3 years of the policy and 4th year onwards gradually reduces |
Evenly distributed over the initial 5 years (lock-in period) |
IRDA has eliminated high front-ending of the expenses, which were as high as 60%. The regulator has also mandated that expenses should be evenly distributed during the lock-in period (5-years) which will reduce the overall charges for the whole policy term |
| 5. Surrender Charges * |
No limit. Companies can charge as per their discretion |
IRDA has set a range of surrender charges from 2.5% to 12.5% for policies of less than 10 year term and 2.5% to 15% for policies of more than 10 year term |
This will help those investors who wish to exit ULIP after the 5-year lock-in as they would not suffer any additional surrender charges over and above the expenses mandated by the IRDA |
| 6. Overall Charges |
No limit |
Companies can charge maximum upto 3% and 2.5% for policy of 10 year term and 15 year term respectively |
IRDA has taken this move in favour of investors, which will thus result in overall higher returns due to lower charges |
| 7. Top-up |
No compulsory life cover |
Top-ups will be treated as single premium policies and will attract mandatory additional life cover. This amount (of top-up) will be locked in for 3 years |
This step will have mix impact on the policyholders. On the one side, they can get increased insurance cover without entering into a new policy agreement. But, on the other hand, it will increase overall cost due to higher mortality expenses charged by the insurance companies |
| 8. Partial Withdrawals |
Allowed after 3 years |
Allowed only after 5 years for all non-pensioned products |
This step will harm those policyholders who would be in need of liquidity in emergency period, but nonetheless will also promote long-term saving habits amongst individuals |
| 9. Lock-in-Period |
3 years |
5 years |
All investments in ULIPs will carry a 5-year lock-in period. This will clearly weed out the mis-selling of ULIPs as short-term products to investors and will also promote long-term saving habits amongst individuals |
| 10. Minimum Premium Paying Term |
3 years |
5 years |
With minimum premium paying term increased to 5 years from the present 3 years, will lead to ULIPs being considered only by investors serious about building a long-term investment portfolio |
| 11. Insurance Cover on Pension Plans |
Not available |
Mandatory insurance/health cover on all pension plans |
Insurance/health cover with pension plans will attract higher charges (in terms of mortality charges) thereby reducing the overall returns |
| 12. Tax Benefits |
Enjoys Exempt-Exempt-Exempt (EEE) Status |
Under consideration in DTC |
Change in status of ULIP from Exempt–Exempt–Exempt (EEE) to Exempt–Exempt–Tax (EET) at the time of withdrawals will have an impact on the financial plans of people who own ULIPs |