Unit-linked insurance plans roll expensive for investors

Unit-linked insurance plans have become just that bit more difficult to access for retail investors.
This follows the recent changes made to the premium configuration of policies launched by some insurance companies. Since September 1, the date when ULIPs were believed to comply with the Insurance Regulatory Development Authority's new norms on such policies, most of the recently 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.
Even the few insurance companies that offer the ‘monthly premium' option have now raised the minimum commitment to Rs 2,000 — translating 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 series 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 method 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 sharing and make ULIPs more transparent and cost-effective.
Insurance companies reason that under the revised norms, they will finds ULIP marketing money-making, 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.
According to an industry insider, the regulator's insistence that policyholders must not suffer more than 3(%) percentage points as fees out of the gross returns posted by the insurance company, is already a constraint on the latter's ability to defray the customer acquisition cost ( marketing expenses). The additional stipulation that cancellation charges (for premature termination) can not exceed 4(%) per cent of the premium paid, means that initial acquisition costs can be defrayed in full only if the size of the annual premium collected from the policyholders up to that point of time are larger than earlier. Hence, the industry's emphasis on a larger ticket size for the annual premium.
A top official of an insurance company said that the charges an insurer can levy are capped through minimum return criteria laid down by the IRDA. This makes it difficult for the insurance company to attract customer acquisition costs at a lower premium.