Unit-linked insurance plans have become just a bit expensive post 1st September 2010 retail investors. This is because of structural change brought about by the Insurance Regulatory Development Authority's (IRDA) new norms.
Most of the newly launched products offer only an annual premium mode (unlike the monthly payment option earlier) and moreover, the minimum premium payable for such policies now start at Rs 15,000 — an increase of Rs 5,000 from the past.
The few insurance companies that offer the ‘monthly premium' option have now raised the minimum commitment to Rs 2,000 — turning into a premium of Rs 24,000 a year. The new ULIPs launched by insurers such as ICICI Pru Life, HDFC Standard Life, Max New York Life, LIC and Kotak set their annual premium in the range of Rs 15,000-20,000, and Canara HSBC OBC Insurance and Birla Sun Life, have a starting premium of Rs 25,000/annum.
The monthly mode offered by SBI Life and Birla Sun Life comes at a higher premium of Rs 2,000-2,500 a month, taking the annual premium outgo to Rs 24,000 and Rs 30,000, respectively. One of objectives of the new IRDA regulation was to enhance retail participation and make ULIPs more transparent and cost-effective.
Insurance companies believe that under the revised norms, marketing ULIP will be profitable, only if policyholders continue to pay premium over the policy's 10-year or longer term. Investors are more likely to keep their policies in force if premium are collected on an annual basis, compared with a shorter time-frame.
Insurance company personnel said that the charges an insurer can levy are capped through minimum return criteria laid down by the IRDA, which makes it difficult for the insurance company to absorb customer acquisition costs at a lower premium.
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