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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Thursday, July 8, 2010
Saturday, July 3, 2010
Future Generali Life launch new ULIP
Future Generali Life Insurance, a joint venture between Future group of India and Generali Group of Italy, has come out with a unit linked insurance plan (ULIP) ‘Future Generali NAV Assure’. The plan seeks to provide maximum opportunity for growth while protecting the investments next to adverse market circumstances in financially unstable times. Addressing presspersons here on Wednesday after launching the product, Balram Sarma, Chief Operating Officer, said the scheme guarantees highest NAV (net asset value) recorded on every day basis during the first seven years of the policy or NAV at maturity date, whichever is superior.
The ULIP would protect the investment proceeds and the customer could invest without waiting to time the markets whether they are cheerful or bearish. It is available for customers in the age group of 8-60 years.
The insurance plan allows flexibility to its customers to pay premiums with 4 options to select from being single, 3, 5 and 7 years. It comes with a fixed policy term of 10 years and the minimum annual premium is Rs. 39,960.
The NAV guarantee is applicable only on maturity provided the policy is in force. The premium allocation charges sort from 1-8(%) per cent depending on the premium group and the premium paying term.
According to Mr. Balram Sarma, Future Generali was working through 91 branches across 83 locations with over 44,000 licensed advisors.
The ULIP would protect the investment proceeds and the customer could invest without waiting to time the markets whether they are cheerful or bearish. It is available for customers in the age group of 8-60 years.
The insurance plan allows flexibility to its customers to pay premiums with 4 options to select from being single, 3, 5 and 7 years. It comes with a fixed policy term of 10 years and the minimum annual premium is Rs. 39,960.
The NAV guarantee is applicable only on maturity provided the policy is in force. The premium allocation charges sort from 1-8(%) per cent depending on the premium group and the premium paying term.
According to Mr. Balram Sarma, Future Generali was working through 91 branches across 83 locations with over 44,000 licensed advisors.
Monday, June 28, 2010
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.
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.
Wednesday, June 23, 2010
Life insurers’ premium up 63% among Ulip chain
Despite the controversy nearby the regulation of unit-linked insurance policies (Ulips), new business premium of life insurance companies grew 63(%) per cent to Rs 8,218 crore in May 2010, compared with Rs 5,050 crore in the same month last year.
Public sector insurer Life Insurance Corporation (LIC) registered 82(%) per cent jump in new business premium, growing from Rs 3,241 crore in May 2009 to Rs 5,907 crore in 2010.
Private life insurers saw new premium grow from Rs 1,809 crore in May 2009 to Rs 2,311 crore in 2010, a growth of 28(%) per cent.
The controversy over the regulation of Ulips happening after the Securities and Exchange Board of India (Sebi) in April barred 14 life insurance companies from selling Ulips, calling them investment products and asking insurers to seek approval from it before introduction such products.
Following the controversy, most companies kept the launch of new unit-linked products on hold.
However, now that the government has complete it clear that Ulips will continue to be keeping pace by the Insurance Regulatory and Development Authority (Irda), the industry hopes to launch new Ulips soon.
Among private life insurers, ICICI Prudential collected new premium of Rs 460 crore in May 2010 compared with Rs 346 crore a year ago, a jump of 36(%) per cent.
SBI Life garnered Rs 442 crore new business premiums during the same month, posting a 37(%) per cent increase over last year’s.
Meanwhile, gross premium underwritten by general insurance companies grow 20(%) per cent to Rs 2,994 crore in May 2010 compared with Rs 2,490 crore in the earlier year.
Four nationalized general insurance companies accounted for Rs 1,796 crore of the total gross premiums, while private non-life insurers collected Rs 1,197 crore during the month.
Public sector insurer Life Insurance Corporation (LIC) registered 82(%) per cent jump in new business premium, growing from Rs 3,241 crore in May 2009 to Rs 5,907 crore in 2010.
Private life insurers saw new premium grow from Rs 1,809 crore in May 2009 to Rs 2,311 crore in 2010, a growth of 28(%) per cent.
The controversy over the regulation of Ulips happening after the Securities and Exchange Board of India (Sebi) in April barred 14 life insurance companies from selling Ulips, calling them investment products and asking insurers to seek approval from it before introduction such products.
Following the controversy, most companies kept the launch of new unit-linked products on hold.
However, now that the government has complete it clear that Ulips will continue to be keeping pace by the Insurance Regulatory and Development Authority (Irda), the industry hopes to launch new Ulips soon.
Among private life insurers, ICICI Prudential collected new premium of Rs 460 crore in May 2010 compared with Rs 346 crore a year ago, a jump of 36(%) per cent.
SBI Life garnered Rs 442 crore new business premiums during the same month, posting a 37(%) per cent increase over last year’s.
Meanwhile, gross premium underwritten by general insurance companies grow 20(%) per cent to Rs 2,994 crore in May 2010 compared with Rs 2,490 crore in the earlier year.
Four nationalized general insurance companies accounted for Rs 1,796 crore of the total gross premiums, while private non-life insurers collected Rs 1,197 crore during the month.
Friday, June 18, 2010
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.
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.
Wednesday, June 16, 2010
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.
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.
Wednesday, June 9, 2010
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,''
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,''
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