The Insurance Regulatory and Development Authority (Irda) has issued guidelines for universal life products or variable insurance products (VIPs). In a note to CEOs of all life insurance companies, Irda said all VIPs will only be offered under the non-unit linked platform.
VIPs are to be defined as non-linked life insurance products that provide a death benefit equal to the guaranteed sum assured, together with the balance in the policy account, Irda said. Besides, every policy shall have a corresponding policy account whose balance shall depict the accrual to the policyholder. The policy account shall be credited with premium net of all charges, Irda said. The guaranteed rate and bonus shall be applicable to the balance of the policy account. The statement of policy account shall be sent to the policyholder at least once a year.
Malay Ghosh, president and executive director, Reliance Life Insurance, said the Irda has defined the universal life product for the first time. “Though I'm yet to go through the Irda guidelines, I hope two of our traditional products may come under the definition of the universal life product, which have already been withdrawn by us temporarily since the circulars was issued by Irda on October 22. We are looking into the guidelines on the subject,'' he said .
According to the new guidelines, the policyholder will be offered the flexibility of changing the sum assured during the currency of the contract, subject to a minimum assured sum. The guidelines specify that no group insurance contract is allowed for these products at this stage. A top-up premium is allowed throughout the term.
However, at any point of time during the currency of the contract, the total top-up premium paid shall not exceed the sum total of regular premiums paid at that point of time. Besides, no partial withdrawal shall be allowed under this product. But a loan amount of not more than 60% of the balance may be extended at a rate of interest, the Irda notification said.
All VIPs shall be offered as traditional products either as participating or non-participating, as per the current practice. Further, for all modes of premium payment (viz., annual, half-yearly, quarterly and monthly) the additional interest rate (for non-par) or the bonus (for par) shall be declared once a year (immediately after the annual actuarial valuation i.e., as on March 31 of each year) which is to be credited to the policy account in the manner as specified in clause 4. The guaranteed rate is to be credited to the policy account at least on quarterly basis.
The insurer has to keep a separate account of all receipts and payments in respect of this product. The valuation of assets and liabilities shall be in accordance with the Irda (assets, liabilities and solvency margin) Regulations, 2000.The insurance regulator had banned sale of universal life insurance policies in October after receiving complaints on the sale practices of the insurers. However, Irda had issued the draft guidelines for these products.