Now you have 2 years to revive a lapsed Ulip

A lapsed policy is the last thing a responsible person would want in his/her balance sheet. Imagine the scenario. A policyholder forgets to pay the premium on the due date. He/she fails to pay the premium even after reminders from the company asking him/her to renew the policy within the grace period. The reasons for not paying the premium may be a temporary financial crunch or something serious and unanticipated.

But he/she would lose the insurance cover. In the process, the policyholder's worst nightmare could come true if something were to happen (euphemism for death) to him/her during the period. The whole purpose of buying a life cover - to support the family financially when one is not around - would be entirely defeated.

However, some Ulip (unit-linked insurance plan) holders would get more breathing space now thanks to the recent decision of the Insurance Regulatory and Development Authority (IRDA) to allow policyholders to revive their policies within two years from the premium due date.

The new guideline will be applicable only to Ulips issued after September 1, 2010, when the course-altering norms for Ulips were put in place by the regulator. However, Ulips that have crossed the lock-in threshold of five years will not get any benefit from these regulations.

Relaxed rules

The revised norms, which will become effective from November 1, are aimed at making it easier for policyholders to reinstate their policies that have lapsed. "Under the earlier guidelines, one could not revive their policy once it lapsed 60-75 days after the premium due date. The policy was treated as withdrawn and the balance amount moved to the discontinued policy fund. With the new guidelines, one has the option of reviving the policy for a period of two years (but within the lock-in period of five years)," says Gaurav Rajput, director, marketing, Aviva India.

Until now, if premiums were not paid within the grace/notice period, the accumulated funds were transferred to the discontinued policy fund and remained locked in till the end of the fifth year of the policy, after which it would become payable to the policyholder.

"After this circular, once monies are moved to the discontinued policy fund in the first five years, the policy can be reinstated for up to two years. In which case, the cover will be reinstated subject to underwriting, and the client will again get a choice of investment funds," explains Andrew Cartwright, chief actuary, Kotak Mahindra Old Mutual Life Insurance. For policies more than five years old, reinstatement is not possible, as the funds become payable immediately after discontinuance.

Tata AIG launches 2nd InvestAssure Apex Supreme ULIP series

Private insurer Tata AIG Life Insurance today announced the launch of the second series of its 'Tata AIG Life Insurance InvestAssure Apex Supreme' unit-linked insurance scheme.

"The introduction of the Series II of funds for Tata AIG Life Insurance InvestAssure Apex Supreme will once again give our customers the opportunity to invest in this unique product that is targeted at customers with medium to low risk appetite, who want to gain from the upside potential of the market whilst safeguarding their investments," Tata AIG Life Managing Director and CEO Suresh Mahalingam said in a release issue here.

Tata AIG Life Insurance InvestAssure Apex Supreme is a five-year limited pay plan with a policy term of 10 years and comes with the benefit of a guaranteed maturity unit price ( GMUP )) achieved under the product during the 100 reset dates.

It also provides a guaranteed maturity addition that is payable on maturity and death benefit for the financial protection. Click to know about Insurance

The policy is for individuals between the ages of 18-65 years and is eligible for tax benefits.

ULIP helps get to long-term goal

Mahesh earns Rs 10 lakhs per annum. Categorized as high risk customer with work involving extensive travel, Mahesh has little time towards investment planning. Due to the risky nature of his work, he knows it is important to own a risk cover to benefit his family. He needs to save enough money to meet his children's higher education and marriage expenses.

Perhaps, Mahesh should consider a unit-linked insurance plan (ULIP). These are investment products bundled with an insurance component. These products are ideal to achieve long-term goals for investors who have little time to manage their finances.

Here are some features that make ULIPs a class apart from other instruments:

Long tenure products

Investors can systematically invest in ULIPs at periodic intervals where the investor benefits from rupee cost averaging. To ensure that ULIPs are treated as long-term insurance products, the Insurance Regulatory and Development Authority (IRDA) has increased the lock-in period for ULIPs from three to five years. The lock-in period of five years affects its liquidity coordinate.

Further, a host of charges are deducted from the premium component and also the fund value. Since these products are burdened with high quantum of front loads, it only makes sense to stay invested for longer tenures. Otherwise, these charges can eat into your returns.

Flexibility

The life cover component of ULIPs that a nominee receives is the higher of the fund value and sum assured or both, in the event of unfortunate death. The investment component of ULIP can be in debt, equity or a mix of both according to the risk appetite of the investor.

As one ages the insurance needs change and ULIPs take into account this need. Investors have the option to increase or decrease the extent of protection over the term of the plan. One can also pep up the insurance component by including critical illness riders.

You can top up the existing fund value whenever you choose to. Usually, ULIPs also allow fund houses to switch between funds at no extra fees in the form of switching costs. Since these are long-term investment products, it makes more sense to have a greater exposure to equity than debt. ULIP products with debt concentration with their relatively lower returns, can succumb to inflation risk in the long run.

Tax benefit

ULIP products qualify for tax deduction. The returns are tax-free after the five year holding period.

Choose ULIP with potential

Though ULIPs can boast of achieving long-term financial targets, you must exert caution when selecting the scheme. Nobody can truly predict the economic climate, inflationary pressures and market conditions over a distant future. Carefully select an asset mix that is not only in sync with your risk appetite but also has the potential to generate good returns in the long run.

Before buying any ULIP product, get to know the various charges and fees. Any penalty like premature redemption charges must not come as a surprise to you later. Finally, if you have good financial discipline and the time, build a portfolio of insurance cover, handpicked equity funds and retirement products such as PPF.

ULIPs lose polish for investors insurance companies equity holdings plunge

Equity investments by insurance companies plunged to less than a tenth as policyholders surrendered some unsuccessful old ones to shift to more attractive new products, and regulatory changes took sheen off the unit-linked plans.

LIC missed its annual target of buying shares by a huge margin as policy surrenders jumped more than three-fold during the year. Insurance industry's net investment in equities tumbled to Rs 3,138 crore in the fiscal 2011, from Rs 34,809 crore a year earlier, data from the Securities & Exchange Board of India show.

"Drop in equity investments is because of lower inflows, people are moving towards traditional plans," said Prashant Sharma CIO of Max New York Life. Insurance companies are hit by lower flows into once famous unit-linked insurance plans (Ulips) that had an option to invest a huge corpus into equities unlike traditional insurance plans, where the regulation forced more debt holdings.

Flows into ULIPs fell due to a longer lock-in period that deterred investors and lower incentives made distributors' interest wane. At the beginning of the fiscal year, LIC said it would invest up to Rs 75,000 crore. "Surrenders in the industry is high,'' says Bajaj Allianz chief investment officer Sashi Krishnan. "Policyholders are surrendering from their existing policies or not paying renewal premium as the new set of guidelines is better."

SBI Life's chief investment offer Abhijit Gulanikar said that the increase in surrender has reduced the net investment of the industry in equity. SBI Life had seen policy surrenders of over Rs 1,000 crore. The new guidelines on Ulips that were issued by the Insurance Regulatory and Development Authority (Irda) had capped the surrender charges that one needs to pay while withdrawing from a policy.

The policy had come in force since September 2010. "Insurers are focusing more on single premium and guaranteed products. In these cases, the equity component is not high," said Krishnan. Earlier, there was no cap on surrender charges and companies levied up to 100% at the time of surrender.

The lockin period has been increased to 5 years. Therefore, people are not renewing their existing policies. While all 100% premium can be invested in Ulips, policyholders have the option to choose between the funds and the proportion. In the case of traditional products, with opaque investment plans, the insurance regulator regulates investment norms.

Increase your life cover with LIC Samridhi Plus

LIC Samridhi Plus was launched by India’s Life Insurance Corporation under the range linked with insurance based on security, protection and growth.
This is mostly directed towards policy holders protection the investments from any fluctuations that may hit the market.
This was also confirmed by the corporation stating that Samridhi Plus is a protection plan policyholders investments.
Another important feature of this policy is the life cover plan that stretches across a plan term of 10 years and covers around Rupees 50 lakh based under positive terms and conditions of the policy.
To avail Samridhi Plus an entrant’s minimum age limit should be 8 years while the maximum should be 65 years.
The range of minimum premium of this policy depends and can vary between Rs 1500 (through ECS) to Rs30, 000(by premium in a single go). It may also be in the form of a yearly payment of Rs 1 lakh for a payment period of 5 years.
The sale of this plan will be available throughout a term of 3 months from the launch date. Dual withdrawals are also sanctioned after the completion of the 5th anniversary.
Under the situation of death of the policy holder within the term of policy particularly when the life cover is at its full application, the person held as nominee will get a higher sum during the policy over the fund value of the policy holder.
Accident benefit as mentioned is also a part of this effective policy. The range of sum over the annualized premium ranges between 10-20 times below the age limit of 45 years under the premium term of 5 years of this policy.
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New ULIP Plan Lunched by LIC

Life Insurance Corporation of India launched 'Samridhi Plus' under its unit linked portfolio offering insurance protection, safety and growth.

Samridhi Plus safeguards policyholders' investment from market fluctuations, LIC said in a statement here.

Accident benefit option is also available under this plan that will be equivalent to the life cover up to a maximum of Rs 50 lakh, subject to positive conditions.

The policy term for the plan is fixed for 10 years, it said.

The minimum age at entry level for Samridhi Plus is 8 years while the maximum age is 65 years.

The minimum premium ranges from Rs 1500 (monthly - ECS) to Rs 30,000 (single premium) depending on the mode of payment while the maximum is Rs 1 lakh per annum under any mode for the 5 year premium paying term.

ULIPs have prospective for life insurers despite curbs'

Unit linked insurance policies (ULIPs) designed and sold under the new norms that came into effect Sep 1 have a great prospective for life insurers, said experts participating in a board discussion here Monday on "Future of ULIP".

The panellists, however, were not common on which segment of the market ULIPs were suitable for.

The board discussion was part of the 2-day seminar on "Current Issues in Life Assurance" organized by the Institute of Actuaries of India (IAI).

The Insurance Regulatory and Development Authority (IRDA) brought out new norms governing ULIPs capping different charges levied by the insurers.

The new norms kicked in Sep 1 and in the process sucked out around 250 policies from the market.

The life insurance industry had to be content with selling around 75 new ULIPs approved by the IRDA since then. This has brought down new business for life insurers.

Richard Holloway , managing director (South East Asia & India) Milliman Private Limited, said: " ULIP is a popular product throughout the world that has stood the test of time meeting the needs of customers, giving them higher returns and offering transparency."

He said life insurers complain that the new ULIP norms leave them with limited scope to reimburse the distributors as commissions have to be reduced.

In addition, the companies will not be able to enjoy high surrender profits - profits earned when a policy holder surrenders his policy - owing to lower surrender penalties stipulated in the new norms.

"The industry said the focus should be on mis-selling in general and not capping of charges," Holloway said.

Stating that ULIP has good potential, T.R. Ramachandran, chief executive officer & managing director of Aviva Life Insurance Company India Limited, said: "The product is not for middle or lower middle class segment. There cannot be a ULIP where the annual premium is around Rs.8, 000."

Such policyholders are buying the product just for claiming income tax exemption, he remarked.

Sanjiv Bajaj, managing director, Bajaj Capital Limited, said ULIPs had to be targeted at individuals as these offered them to accumulate wealth.

LIC crosses Rs 1,000 crore score under new ULIP Plans

Country's largest insurer, Life Insurance Corporation (LIC), today said it has crossed the Rs 1,000 crore-mark from its two new unit-linked plans, which were launched after the latest guidelines of the sectoral regulator IRDA took effect last month.

"Life Insurance Corporation of India has crossed the Rs 1,000 crore marks under the new ULIP plans, Pension Plus and Endowment Plus. The total premium income under these two plans as at October 18, 2010 was an awesome Rs 1,282 crore approximately," LIC said in a statement.

The new plans were introduced last month. Pension Plus was launched on September 2 and about Rs 150 crore of premiums have been collected under it from more than 30,000 policies.

Endowment Plus plan was launched on September 20 and it was LIC's 16th linked product. Over Rs 1,000 crore has been garnered from Endowment Plus alone from over 2 lakh policies, in merely 29 days.

As per new guidelines, effective September 1, Insurance Regulatory and Development Authority (IRDA), the commission paid to distributors and expenses charged by insurers will no longer be front-loaded. Instead, they will be distributed over the lock-in period of the schemes, which has been raised to five years from three years earlier.

Currently, ULIP products account for over 50 per cent of the total premium collected by the life insurance companies.

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Life Insurance

New ULIP norms – What it means?

Nearly three-quarters of the 1.6 million private life insurers have had trouble in business. Insurers are taking steps to cut costs in the wake of a dramatic reduction in charges of unit-linked insurance policies (or Ulips) by the insurance regulator, IRDA. The new norms, may push 1.2 million agents out of work, took effect from 1 September.
Ulips are: A hybrid product that combines insurance and equity investment.
They account for at least 80% of new business premiums for life insurers. The size of the agency channel, which sells policies of 23 life insurers, has grown from 900,000 to about three million since 2000. Until recently, agents were aggressively pushing sales of Ulips, earning commissions of up to 40%!
The state-run, Life Insurance Corp. of India (or LIC), alone manages at least 1.3 million agents. There are about 310 million policies in force, including traditional life insurance policies.
The insurance regulator has capped various charges including surrender charges. Till 31st August, companies were able to levy up to 100% as surrender charges from a customer if a policy was discontinued.
The regulator has also ordered insurers to offer a minimum guaranteed return of 4.5% on the fund value in linked pension plans. Earlier, there was no such norm and the value of the funds invested entirely depended on the yield of the instruments where the premium was allocated.
The new norms will benefit policyholders but will bring down average agent commissions in Ulips from 15-17% to 7-9%. The reduction in the first-year agent commissions will help curb rampant mis-selling, insurance firms will be required to underwrite more losses, infuse more capital and cut costs to sustain Ulip sales.
LIC may not need to resort to cost-cutting measures due to its highly profitable business, but private sector insurers are planning drastic cost-cutting measures to sustain their businesses in the new regime.
What measures companies can take?
• Cutting the agency channel is one of several cost-cutting measures.
• The firms plan to cross-sell products through branches of associate companies instead of opening new branches,
• Cut commission of agents retained
• Redesign new products with variable premium.
• The companies are also focusing on alternative distribution channels such as subancassurance, where the expenses are lower. According to industry estimates, the cost of sales through bank branches or bancassurance can be as low as 20% of the value of the policies sold.
• To save costs, private players are also focusing on training facilities to improve agents’ productivity.
• Some bank-owned life insurers are planning to sell insurance policies through the branches of their mutual fund subsidiaries.
Statistical analysis:
According to a recent study, existing distribution channels are almost entirely focused on Ulips. Nearly 85% of new business premium comes from sales of Ulips but the cost of sales through agency channels is very high—between 50% and 100%.
The study said the cost should be brought down to 25-30%. It also revealed that nearly 60% of the agents work part-time.
India’s life insurance industry has grown some eightfold in the past ten years, collecting a total premium income of Rs2.61 trillion in 2009-10, or which nearly Rs1.1 trillion came from Ulips. At least 310 million life policies are in force now.
The regulator has so far cleared 51 of 68 new Ulips filed by insurers. There were 230 Ulips in the market till August.

Norms could cap charges on top of ULPs, Irda

The Insurance Regulatory & Development Authority (Irda) is planning to cap the charges on universal life policies, or ULPs. These have almost replaced unit-linked insurance plans (Ulips) in terms of new business. Ulips, which used to account for around 80(%) per cent of the segment, lost their shine after the regulator brought in tough norms from September 1.

“We are planning to cap the charges on ULPs, which are parallel to Ulips and have a component of traditional plans. We have received complaints from different sections of the industry claiming that some companies are selling them as Ulips and overcharging policyholders. We want to plug all loopholes,” said a senior Irda official.

Guidelines on ULPs will be in place by next week, the Irda official added. J Hari Narayan, chairman of Irda, had conveyed last week that every product would be experienced for fairness and robustness and only then would they be permitted on the market.
According to present guidelines, commissions on a single premium are capped at 2(%) per cent. On pension products, they are capped at 7.5(%) per cent, while on any other insurance product they can go up to 40(%) per cent.
After the September 1 changes to Ulips, commissions to agents declined to 7-9(%) per cent from 12-15(%) per cent. The industry expects volumes to pick up, as the new norms improve policyholders’ confidence.
So far, there have been no separate guidelines for ULPs, which are complex, hybrid products. For example, unlike Ulips, there is no unitisation of funds. But other features are similar to Ulips. For instance, after the deduction of mortality charges, the remaining portion of the premium amount is invested in bonds and equities.
ULPs are unique in the sense that policyholders have the flexibility to change the premium, sum assured and the term of the policy during the tenure.
“Irda has not cleared any ULPs in the last 3-4 months. The product is under Irda’s scanner. Agents are pushing them to earn a high commission,” said Sanjiv Pujari, an actuary appointed by SBI Life.
Another executive expects the regulator to come down hard on this product. “There have been complaints about ULPs being sold under the guise of Ulips,” he said.
But there are some who defend ULPs. “There is no need for separate guidelines for universal life. This is not a very difficult product. We don’t disclose the net asset value like Ulips, but the expenses are explained upfront,” said a chief executive officer of a life insurance company.
He added that insurance companies have been selling the products before Ulips were launched in India and have been following the traditional guidelines.
The mutual fund industry, after shifting to a zero-load structure last year, complained that agents and brokers pushed only Ulips because of the high commissions. Soon after, Irda capped the overall charges on these products. To avoid such a situation, the regulator has decided to address the issue proactively.
Also, a committee headed by D Swarup, former chairman of the Pension Fund Regulatory & Development Authority, had recommended shifting to a no-load structure, where a buyer does not pay a commission on any financial product.

Old strategy good for new ULIPs as well

Unit-linked Insurance Plans (Ulips) are back. Insurance companies are busy presentation new versions of the products which had earned a bad name for the whole industry in their earlier avatar due to rampant mis-selling. According to financial experts, the new Ulips, which meet the latest strategy issued by the Insurance Regulatory and Development Authority (Irda), are definitely more transparent and investor-friendly.

For example, the charges are now consistently spread across the tenure of the policy, there is a longer lock-in period and surrender charges are capped. But is the new version a better product now or is it just old wine in a new bottle? “The new guidelines lay great stress on promoting Ulips, primarily as insurance products. The insurance component in the new Ulip will be significantly higher than earlier. Further, higher initial allocation could result in better returns,” says G Murlidhar, chief operating officer, Kotak Life Insurance.

Evenly spread allocation charges, or the insurer’s fee for managing a policyholder’s money, through the policy term will allow the customer to see a gradual build-up of his funds over time, encouraging him to pay premiums regularly and staying invested for the entire period of the policy, he adds.

Investors can expect better Ulip products and services

Several new unit-linked insurance plans (Ulips) have started hitting the market after the Insurance Regulatory and Development Authority’s (IrDA) new strategy on Ulips came into effect from September 1. So what has changed?

Existing Ulip customers have nothing to worry as the regulations will only apply prospectively and will not affect them in any way.

Cap on charges between gross and net yields throughout the policy term that will be mostly evenly spread, and increase of lock-in period from 3 to 5 years will enable the customer to reap higher returns.

The new guidelines restrict the penalty that an insurer can levy on premature surrender. This cap on surrender penalty will ensure greater liquidity for the customer and reduce his loss even if he surrenders early.

Enhanced customer disclosures will improve transparency and drastically decrease mis-selling. Companies on their own accord can also be projected to add check layers beyond those mandated by the regulator to weed out mis-sales.

Insurance companies will invest more in better equipping intermediaries both in terms of knowledge and advisory capability.

Further, mandatory Need Based Selling, whereby insurance agents will be required to assess the customer’s exact insurance needs based on his financial and filial profile may also soon become an integral part of the sale process.

Customers can look forward to far better product and service experience. Greater customer affinity is likely towards life insurance in general and Ulips in particular and more customers can be expected to ride out the entire policy term.

As for companies, most of the old Ulips will be off-the-shelf and they will introduce a swing of products to adhere to the new guidelines. However, margins may come under pressure. Emphasis will now be on higher business volumes, increasing average ticket size and bettering persistency levels. Insurers will qualitatively enhance the customer value proposition by introducing simpler, more transparent products, better service and support during the policy term and, improving the overall quality of engagement.

Current levels of lapsation and surrender may consequently reduce. Insurers may also look at innovative platforms to rationalise cost and enhance appeal. The product mix will also change. From the current Ulip-heavy portfolio, insurers will strive to achieve greater balance between traditional plans and Ulips. However, insurance firms which had planned to list may revisit their plans, since valuations may get affected now.

New Ulip norms starting 1st Sept, policyholders to advantage

Starting Wednesday, policyholders will get a much fairer deal if they invest in unit-linked insurance plans (Ulips).

The new rules of the Insurance Regulatory and Development Authority (Irda) take result from September 1. Ulips, which contributed 80(%) per cent of the total premium collected by private companies, will see an impressive change. Irda has capped the difference between net and gross yields during the policy term. Insurers will have to offer a minimum approved return even if a policyholder withdraws from the fund before maturity. For the 5^th year, the cap is fixed at 4(%) per cent.

WHAT’S IN STORE?
Move: The difference between net and gross yields capped during the policy term.	Effect: The policyholders will get higher returns on their Ulip investments.
Move: The lock-in period will increase from three years to five years.	Effect: If anyone withdraws in the first year, he will get back the amount after deduction of charges only after the 5th year.
Move: Surrender charges have been capped at a level much lower than what exists at present	Effect: It will ensure that only acquisition expenses are recovered in the event of the discontinuance of the policy.

From tomorrow, the lock-in period will increase from 3 years to 5 years. If a policyholder wants to remove in the 1^st year, he will get back the amount invested after deduction of various charges only after the 5^th year.

To ensure only gaining expenses are recovered in the event of the discontinuance of the policy, surrender charges have been capped at a level much lower than what exists at present. The industry had been benefiting from higher lapses. Funds collected from policyholders under lapsed policies are sent to a part fund and the money is given the the policholder after the company deducts all charges. The charges are as high as 100(%) per cent in some companies.

“We have always maintained that insurance is a long-term contract. Any pre-termination of policy is not good for all stakeholders,” said S B Mathur, secretary general, Life Insurance Council.

“Products are going to be more gorgeous now. We expect greater customer interest, as charges will be uniform as well as lower,” said G V Nageswara Rao, managing director and chief executive officer, IDBI Federal Life Insurance.

Rao added the customer could now expect higher returns, as the amount of funds invested was likely to go up.

Along with these changes, the regulator has set minimum disclosure guidelines for insurers.

“Now agents cannot take policyholders for a ride. They (policyholders) can now see the financial position of the company over the website and do not need to depend on agents,” added Mathur.

On the flip side, though overcharging and misspelling will come down, insurers say product innovation and customisation will be affected. Also, traditional plans will suit those in the lower ticket size segment.

Changes to ULIPs with the aim of should create you smile

Just under two weeks ago, the ministry of finance had located the ball in the Insurance Regulatory Development Authority’s (IRDA’s) hand, creation IRDA the sole regulator for unit linked insurance plans (ULIPs).

In a circular issued on June 28, 2010, the regulator notified a number of changes to the configuration and framework of ULIPs that are usually helpful to customers, but with some care.

These changes, that will be successful in all ULIP sales from September 1 this year, plan to address the issues that were being highlighted by critics and customers alike. Here we take a look at them
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Domestic ULIPs with limit on yearly fees

Last week, there was a rise in of stories in the media about how IRDA is about to unleash a wave of reforms upon ULIPs. It seems the insurance regulator has swiftly discovered a number of basic problems in ULIPs and it has decided to attach them. Of course, these intentions have only been expressed off-the-record to choose journalists.
The thrust of these ‘reforms’ seems to be to prevent ULIP investors from exiting early. Instead of 3 years, they’ll have to stay for at least 5 years to exit partially, and up to 10 years to exit completely. It seems that 7 or 8 years after ULIPs became a major product category; IRDA has exposed that when investors exit early they lose a huge chunk of their money.
I can only wonder how the regulator missed something that was common knowledge to everyone else in the financial group of people for so long.
Interestingly, some reports last week mentioned another improvement that could transform ULIPs into a truly beneficial type of investment. This would be the application of all charges and expenses uniformly through the life of the investment. If an insurance company is allowed to charge 3(%) per cent total expenses over a 10-year ULIP, it must stay within that limit every year, instead of averaging the amount over the full term.
Such an improvement would likely align the sellers’ interest with the buyers’. At one stroke, it would clear away almost all the negatives in ULIPs. I fully expect that this particular reform won’t actually happen. But if it does, no investment analyst would be uncertain to recommend ULIPs.
Of course, any of these reforms, if and when they happen, will only pertain to fresh investments in ULIPs launched after the rules are changed. Existing ULIP investors will continue to pay a heavy price because IRDA has only woken up now. Of course, it has actually not woken up yet — it has only told a few journalists (off the record) that it’s planning to wake up real soon now.

To be taxed Ulips investment products

The Finance Ministry has said the unit-linked insurance products (Ulips) are investment products and are therefore possible to be taxed after performance of the Direct Taxes Code (DTC). "Ulips are basically investment products and wanted to be taxed.

The final sight, however, will be taken at the time of the formulation of the code", the finance ministry sources said here today. At present, no tax is levy on the returns on Ulips, an equity-linked insurance implement, the regulation of which has become a bone of contention between the insurance regulator Irda and market watchdog Sebi.

Ulips are hybrid investment-cum-insurance products and report for over 50(%) per cent of the total insurance business in the country. When contacted, Life Insurance Council secretary General SB Mathur said, "We have maintained that Ulips are not pure investment products.

But calling them pure investment product is not right. We will approach the income department in due course.

“As per the revised DTC, which will replace the 50-year-old Income Tax Act, only six particular instruments will qualify for the EEE (exempt-exempt-exempt) taxation. Under the EEE mode, tax exemption is provided at all the levels of the instrument-- at the time of investment, at accumulation and at the time of withdrawal.

The DTC is expected to be ready from next April. The six instruments which will qualify for exemption are government provident fund, public provident fund, recognized provident fund, pension funds regulated by Pension Fund Regulatory and Development Authority (PFRDA), pure life insurance products and annuity plan.

As Ulips are investment products, the Finance Ministry official said, it could not be classify as pure life insurance product. The insurance watchdog Irda is locked in a turf war with Sebi over regulation of Ulips.

The difficulty came to the fore after Irda advised 14 life insurance companies to ignore the April 9 Sebi''s order banning Ulip schemes. The row impelled the Finance Ministry to interfere in the matter and mediate an agreement under which both the regulators agreed to seek a legally compulsory order on Ulip jurisdiction.

Following this, Sebi moved the Supreme Court to transfer all cases pertaining to the Ulip issue to the apex court following which notices were sent to the Centre, Irda and 14 insurers. The top court will hear the matter on July 8.

ULIPs may misplace flavour without spice of tax advantage

Unit-linked insurance policies (ULIPs), which constitute the bulk of the business for insurance companies, may end to be a popular investment product if the revised conversation paper on the Direct Taxes Code (DTC) is implemented in its present form.
This is because the revised conversation paper has recommended that only approved pure life insurance products and annuity schemes are subject to EEE (Exempt Exempt Exempt) technique of tax treatment.
“Approved pure life insurance products and annuity schemes will also be topic to EEE method of tax treatment”, the revised paper said.
This implies that the final pay-out from unit-linked plans could be taxed, said officials from the insurance industry.
The DTC had proposed tax deduction on the final pay-out of insurance policies, while exempting the policy premium at the time of role and the interest on it. Life insurance companies had asked that the present system of tax exemption for maturity proceeds be continued. They had made a representation to the Government that the EEE method of addition should continue as against the Exempt Exempt Tax (EET) method proposed.
It seems that while the government has decided on exempting term and whole life policies, it has decided to keep unit-inked products under the EET category.
Insurers fear that this move will spoil ULIP sales. ULIPs comprise almost 80-90(%) per cent of the private life insurers' business and around 65(%) per cent for Life Insurance Corporation of India.
“It is a relief that at least death claim benefits have now been exempted from tax. But it seems that ULIPs have been retained under the EET rule. We will have to go back to the government again with our representation”, said Mr Kamalji Sahay, Chief Executive Officer, Star Union Dai-ichi Life Insurance Company.
The Life Insurance Council is expected to make a representation to the Government for counting ULIPs under the EEE category.
Insurers are also happy that annuities, which were taxed under the existing system, have been exempt from tax.
Currently, up to one-third of the maturity amount when withdrawn is treated as tax-free. However, the remaining two-third amount was taxed as per the individual's tax slab.

ULIP row will be resolved shortly: FM

Finance minister Pranab Mukherjee on Tuesday said the row between insurance regulator IRDA and stock market regulator Sebi about unit-linked insurance products (ULIPs) will be resolve very shortly.

Mukherjee added that even as the life insurance industry has made some development to arrive at out to semi-urban and rural areas, ''the general insurance still requirements to work harder.''

On ULIP, FM said he was alert of the recent issues in the life insurance industry, particularly these products.

He said. ''We will resolve this subject soon. I understand the IRDA has taken some very positive steps in respect of regulations of ULIPs which are in the importance of both the insurance industry as also the policyholders,''

Ulip string can hit business: Religare

Private insurance player Aegon Religare Life Insurance at present said if the turf war between the capital markets regulator Sebi and insurance regulator Irda over Ulips is not resolved at the first it will impact the industry.
"If the issue is not resolved in the next couple of months then it will crash the business," Aegon Religare managing director and chief executive Rajiv Jamkhedkar said, adding however, so far there is no impact on the unit-linked insurance products (Ulips) business and the companies do not have any need for new Ulips now.
On April 9, Sebi had banned 14 life insurance companies, as well as Aegon Religare, from raising funds through Ulips, which invest the premium money in equity and debt markets. But Irda asked insurance companies to overlook the ban and do business as usual as Ulips are an insurance issue and not that of securities market. Sebi reacted to this with a fresh order banning new Ulips.
This forced the finance ministry to interfere which asked the regulators to seek a legally compulsory opinion on the matter, following which the regulators moved the Supreme Court, which will hear the case in July.
Ulips constitute more than half of the total business of the life insurance industry. At the end of the last fiscal, Ulips comprised around 75(%) per cent of the total business of Aegon Religare which can be reduced to 65(%) per cent by the end of this financial as there will be increase in traditional products.
Jamkhedkar said the company will infuse up to Rs 470 crore to build up its branch network and hire over 15,000 in the current financial including 13,000 agents to support its expansion plans.

Irda hits reverse at Sebi on Ulips

The Insurance Regulatory and Development Authority (Irda) has said the Securities and Exchange Board of India’s (Sebi) take in to insurance companies on unit-linked insurance plans (Ulips) sold by them was “misconceived on abstract, legal and structural grounds”.
Irda’s letter to the market regulator comes after the latter’s show cause notice to insurance companies last month, asking why they had not taken Sebi’s approval to sell Ulips.
In a letter to Sebi Chairman C B Bhave last week, Irda’s Deputy Director (Life) Sudipta Bhattachaya pointed out that the regulatory set up in India, which had legal backing, was clearly demarcated.
In its letter, the insurance regulator said the road map for regulation of Ulips by Irda was “well laid down, and settled,” and there was “no merit” in the conflict that insurers must obtain a certificate of registration from the Sebi for selling these products.
Following the Sebi show cause notice on January 15, life insurers had approached Irda. “While there is a factor of market exposure, the insurance component is much higher. The rules are reasonably clear and investor interest is clearly protected,” said the CEO of one of the largest Life Insurance Companies. For some private players, Ulips account for close to 90 per cent of new business.
Application of mutual fund rules to Ulips would mean that companies will not be able to pass on the commission to customers, since entry loads have been banned for mutual funds. In addition, the investment and accounting rules are different for Ulips and mutual funds.
Sources close to the development said Irda’s letter has pointed out the legal requirements that limited Sebi’s jurisdiction to securities and securities related transaction.” What constitutes a security has been defined in the Securities Contract (Regulations) Act, 1956 and insurance contracts are not regulated under these securities laws,” it said.
Further, Irda said that structurally, Ulips are distinct from mutual funds and pointed out that the minimum capital requirement for an insurance company was Rs 100 crore and also maintain around 3 per cent as solvency capital. In contrast, an asset management company “is required to manage thousands of crores of assets with just Rs 10 crore”.
“Certain similarities in the features of various products issued in the financial world would not necessarily imply regulatory overlap,” Irda added.
Asked to comment, a senior Sebi official said: “ULIPs are mix investment products with Insurance cover and since it involves management of funds, Sebi has a role in protecting the interests of investors... Ulips are fit for regulation under Sebi’s mutual fund regulations.”