The insurance regulator has barred insurance companies from promoting unit-linked insurance plans (ULIPs) as investment products.
“Advertisements for unit-linked insurance products, index-linked products and annuity products with variable annuity payment options must contain sufficient, accurate, clear and up-to-date information in plain language,” the Insurance Regulatory and Development Authority of India (IRDAI) said in a master circular.
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What is ULIP?
ULIPs are hybrid financial products that combine insurance and investment.
According to a CNBC TV18 article, part of the premium will be used to pay for life insurance coverage, while the rest will be invested in stocks, bonds, or a combination of both.
Why the new rules?
This comes as insurance companies have launched new small and mid-cap fund options under their existing ULIPs over the last year. However, some advertisements did not include the word “insurance”, leading people to mistakenly label these products as mutual fund schemes, Moneycontrol wrote.
What are the new rules?
IRDAI has said that advertisements mentioning past fund performance must include the compound annualised rate of return for the past five calendar years and a disclaimer that past performance is no guarantee of future results. Benchmark index performance, where relevant, must also be disclosed along with fund performance data, writes The Times of India.
Insurance companies are also required to set up advertising committees and appoint compliance officers to strictly control advertising content.
The regulator also directed insurers to offer policyholders the option to pay premiums online and to appoint new agents or direct sales staff if the agents who sold the policies quit.
The regulator allowed the payment of renewal commission to the new agent.Furthermore, if the assigned policy is not revived or cancelled within six months, the insurer was allowed to accept new policies for the same policyholder from the assigned insurance agent or direct sales staff.
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Should you consider ULIPs?
According to an article by CNBC TV18, the advantages and disadvantages of ULIPs are outlined as follows:
advantage:
- Two-fold benefit: In addition to life insurance coverage, ULIPs also offer investment opportunities across asset classes, making them attractive for those looking for an integrated financial solution.
- Flexibility: ULIPs offer the flexibility to switch between different fund options, allowing policyholders to adjust their investment strategy based on market conditions.
Shortcomings:
- Fee: ULIPs attract various charges such as premium allocation charges, policy administration charges, fund management charges etc. that may impact your overall return.
- Market Risk: The investment component of ULIPs is subject to market risk and returns are not guaranteed.
- Lock-in Period: ULIPs have a mandatory lock-in period of five years during which partial or full withdrawals are not permitted. This limits liquidity and therefore makes ULIPs less suitable for those who need immediate access to funds.
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