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January 26, 2020
Finance

How the ULIP Will Become Better with New Regulations

The IRDAI regulates the insurance products in India. The governing body constantly introduces now changes for the benefit of the policyholders and the insurance industry in general. Read on to know more about how the ULIP will become a better proposition with the recent changes suggested the IRDAI.

The Insurance Regulatory and Development Authority of India (IRDAI) governs the insurance products in India. All the insurance companies in the country are subject to adhere to the rules set of the IRDAI. The body recently announced some new rules for the ULIPs in July 2019. Experts suggest that the new changes introduced by IRDAI will benefit the investors in several ways. Let’s look at what are the latest changes and how it will affect the policyholders.

Extension in revival period for ULIPs

If you fail to pay the premium for your life insurance cover within the grace period, the coverage automatically ceases, and you lose all the benefits of the policy. Although the policy lapses after the grace period expire, you can still revive the policy by paying the outstanding premium amount within a specified period as determined by the insurance company. This period is called the revival period.

Earlier, the revival period for all unit-linked insurance plans was two years, but the new changes in the laws have extended the revival period to three years. This gives the policyholders the chance to revive the policy and secure the future of the family. Also, as per the new law, the insurance companies are directed not to charge any fees or penalty for reviving the policy.

Revisions in the minimum life cover offered by the insurers

As per the IRDAI mandate, earlier the insurance companies were required to provide a certain minimum insurance cover based on the age of the policyholder and the premium paid. For policyholders aged below 45 years, the insurance companies had to offer minimum protection of ten times the annual premium amount. For policyholders over 45 years, the minimum cover to be offered was up to seven times the yearly premium.

Similarly, for the single premium policyholders, the minimum cover to be offered was 125% of the annual premium for people aged below 45 years and 110% for the people aged over 45. The new rule introduced does away with the difference in the minimum coverage based on age.

As per the new rules, the insurance companies must provide a minimum cover of seven times the premium amount for the regular premium policyholders. For the single premium policyholders, the minimum life cover must be 125% of the annual premium amount.

Higher proportions available for commutation of ULIPs

If you have invested in any of the ULIP pension plans, you can withdraw a certain portion of the accumulated corpus in the pension plan when you attain the retirement age. Earlier the withdrawal limit was restricted to 33.33% of the corpus. The introduction of the new rules has extended the withdrawal limit to 60%. Also, the IRDAI has declared that the amount withdrawn from the pension plan will be completely tax-free in the hands of the policyholder.

The extension in the withdrawable amount was made to make the ULIPs comparable with the National Pension Scheme, which allows full exemption on 60% withdrawal of the corpus. The higher withdrawal limit will enable the investors in ULIP to hold a higher amount in hand during retirement.

Buy annuity from other insurance company

Currently, people investing in pension funds are required to buy an annuity from the same insurance company from where they purchased the policy. This was considered as an unwanted restriction as the policyholders were forced to buy an annuity from the same insurance company even if the interest rate offered was low. As per the new rules, the ULIP investors can now purchase the annuity from any other insurance company of their choice to the extent of 50% of the accumulated corpus.

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