Insurance is essential to control healthcare costs

Neeraj Basur, Financial Chronical, 28/9/2011

source: http://www.mydigitalfc.com/personal-finance/insurance-essential-control-healthcare-costs-749

Life is full of surprises. Take for instance a hale and hearty 20-year-old college graduate who discovers that he has type-1 diabetes or the severe back pain a 35-year-old software engineer, a father of two, faces because of bad sitting posture. Two different incidents, but with the same repercussion on long-term health consequences that impacts one’s quality of life and not to forget the costs associated with such medical treatments that remains forever.

The importance of good healthcare is manifested when one comes across such incidents and adopting healthy lifestyles cannot be overemphasised. Though, in the unfortunate event of hospitalisation, the only viable way to reduce the impact of financial consequences arising from such incidents is health insurance.

Life insurance covers the risk of death and has gained in popularity over the years. What about the risk of poor health and the expenses incurred on it? One tends to forget that as important as it is to take care the financial needs of one’s dependents in the event of death, it is equally important to look at de-risking one’s poor health in their lifetime with health insurance. Health insurance guards against financial loss from illness or bodily injury and provides coverage for medicine, visits to the doctor or emergency room, hospital stays and other medical expenses.

Unlike life insurance, where one can arrive at how much cover one needs based on one’s assets, liabilities and an estimated number of years that one wishes to protect one’s financial dependents for; health insurance has no straight-jacket ways to arrive at the quantum of cover one should take. A lot depends on how much one can afford towards premium and realise the value of this insurance.

For instance in the 20s, one should definitely look for an entry-level basic health insurance plan starting with a minimum cover of Rs 2 lakh. Not only is the premium on health insurance low when you start early, it also builds a healthcare record for you that can go a long way in determining future policy benefits and premiums. Likewise, when you are married with children, your responsibilities increase and so do financial commitments. In such a situation, you should consider a family floater health insurance, which is a single umbrella policy protecting all the family members, including dependent parents, providing a coverage of at least Rs 3 lakh or more per member depending on your premium paying ability.

Despite offering great value, health insurance penetration is low in our country because of poor awareness and also the perception that there are no tangible benefits with this policy. A way out to increase penetration beyond the tax benefits could be to encourage those who are fit to buy health insurance with lower rates and offer the unhealthy the policy at a higher rates, rather than declining them complete cover. After all, taking a health insurance policy does not mean that you can keep illnesses and accidents at bay. But at least you can ensure that if they strike your family, you will be able to avail the best possible treatment without having to worry about the costs.

(Neeraj Basur is the chief financial officer of Max Bupa Health Insurance Company)

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Times of India, 14/3/2011

Alife insurance policy is a key component of a financial plan. Chosen well, it safeguards the financial future of a family if the breadwinner passes away. If, however, it is bought for the wrong reasons, the same policy can become a drain on resources and prevents the policyholder from meeting crucial financial goals. Bangalorebased marketing manager Jitendranath Patri is paying a premium of `1.06 lakh a year for six policies that give him a combined cover of `20.4 lakh. "I feel I have overinvested in insurance. These plans take up a huge chunk of my savings. I must resort to some course correction here," he says.

In Kolkata, Meraj Mubarki is agonising over his inability to save enough for his dream house. "I’m in a financial mess. My insurance policies take up too much of my savings, leaving me with very little for my house," says the 33-yearold college professor.Worse, it leaves this sole breadwinner grossly underinsured. Mubarki is covered for `6.75 lakh, though he needs an insurance of at least `60 lakh.

In Mumbai, software professional Amit Kolambkar is thoroughly miffed with the returns from his Ulips and feels cheated.

"The agent didn’t explain how the plan works and how I can decide my allocation to equity," he says. Getting stuck with an unsuitable insurance policy is a malady as widespread as the common cold. There’s one wrong insurance policy in almost every household.

What do you do if you find that you have the wrong insurance? Escaping from an insurance policy entails a very high cost. You can lose up to 50% of what you have paid. In extreme cases, you might have to forfeit your entire investment.

This is what keeps people from junking a plan, however unsuitable it is. "There is a psychological barrier of losing money, which is why people avoid exiting an insurance policy. But it is better to incur a loss at the initial stage rather than continue and compound the mistake," says Arvind A Rao, chief financial planner, Dreamz Infinite Financial Planners.We look at the options for policyholders who want to junk their insurance plans and explain the circumstances in which each should be exercised.

OPTION I

Let the policy lapse Don’t pay the premium and the policy ends automatically.

This is the easiest way to exit a policy. It is also the costliest if the policy has not completed three years. The premium paid in the first two years is forfeited and the policy ends. You also stand to lose the tax benefits availed of in the first two years on the premium payment. You get nothing, except freedom from the policy. Financial planners say this option should be chosen only if you realise that the policy is grossly unsuitable to your needs. "If the policy doesn’t meet your objective, it is better to let it lapse even though you stand to lose the premium for 1-2 years," says Pankaj Mathpal, managing director, Optima Money Managers. The rule is different for Ulips. Even if it is discontinued after the first year, the policyholder is entitled to some amount after paying surrender charges. However, this sum comes to him only after the lock-in period of five years (three years, if bought before 1 September 2010). The fund value, after imposing all charges and penalties, is frozen in the account and earns 3.5% returns till this period.

OPTION II

Surrender the policy

After three years, an insurance policy fetches a surrender value. If you have paid the premium for three years, your insurance policy would have built a reasonable corpus value. So, if the plan is surrendered after this period, the policyholder can get some money back. It will, however, be a fraction of what he has paid over three years because of the surrender charges levied by the insurer. In the third year, the surrender value is roughly 30% of the total premium paid, but this figure goes down as the term of the policy progresses. Till last year, insurers used to levy very high surrender charges on Ulips in the first three years. But last year, the Irda put a cap on these charges. This is `3,000 or 20% of the annual premium in the first year. For plans with a premium of over `25,000, the cap is higher at `6,000 or 6% of the annual premium. The surrender charges come down progressively to zero in the fifth year. "No surrender charge is levied on policies that are more than five years old," says Tripathy. Surrendering a policy gives you some money back, but it also ends the life cover. So, before you decide to junk your policy, find out if you have enough cover. Also, calculate the cost of a fresh insurance policy at the time. You might discover that the premium is very high because you are older.

OPTION III

Turn it into a paid-up policy Stop paying the premiums, but don’t discontinue the policy.

A better alternative to surrendering your insurance policy and losing the life cover is to turn it into a paid-up policy. As in the case of surrendering it, you can use this option only if you have paid the premium for three years and the policy has built up a minimum corpus. Instead of returning the money to the investor, the insurance company uses it to offer him a life cover. Every year, it deducts mortality charges from the corpus.

However, in case of traditional endowment and money-back plans, this cover is proportionate to the number of years for which the policy was in force. For instance, if a policy offers a life cover of `10 lakh for 20 years and the policyholder converts it into a paid-up plan after five years, the life cover will be reduced to about `5 lakh. On maturity of the plan, the diminished corpus and the accumulated bonus are given to the investor. This feature has been widely exploited by agents to mis-sell Ulips to gullible investors. Last year, the Irda issued new rules for Ulips. If the premium of a plan bought after 1 September 2010 is stopped, the policy will be discontinued.

This is meant to reduce the incidence of mis-selling. The paid-up option is by far the best way to exit an insurance policy because it gives the policyholder the best of both worlds. He is freed from the burden of paying the premium that are a drag on his finances, but continues to enjoy the life insurance cover that was the primary objective of the plan.

OPTION IV

Let it continue

If close to maturity, pay the premium till the full term. Of course, if the insurance policy is only 2-3 years away from maturity, one should continue with it for the full term. This is because the painful period of high charges in the initial years has already gone and it doesn’t make sense to let go of the accumulated benefits at the fag end of the term.

If you are finding it difficult to pay the premium, withdraw from the Public Provident Fund or any other longterm investment to pay the premium for your policy. You could also consider taking a loan for this. The Life Insurance Corporation of India, for instance, offers loans against the policy for paying the premium.

http://articles.timesofindia.indiatimes.com/2011-03-14/india-business/28688017_1_policy-ends-policy-lapse-premium

VRIDHI’s view:

We frequently get calls from anxious investor’s who after buying a product are clueless on how much returns they would get, and at times when they want to exit the scheme it becomes a big hardship.

Not just calls, literally on every TV show of ours we get atleast one call on such topics.

Investors need to be Cautious with people who act as “One Medicine Doctor” What ever may be your requirement they would end up giving you only one solution!

Hence you may want to invest for retirement, you may need a protection, you may be trying to save for your children… whatever… A Insurance agent will give you one or more Insurance product for your needs & a Mutual Fund agent will give you one or more Mutual Fund solutions for all your needs!

Hence we repeat… “Play caution when dealing with One Medicine Doctors”

Thanks

VIVEK KARWA, CFP^CM

Investment Strategist & Retirement Planner

Desk Mobile: 98405-40575

Rs14,000 cr hole; loss at LIC MF; govt scrutiny

LIC’s problems echo those at Unit Trust of India a decade ago when its assured return scheme ran into trouble

Tamal Bandyopadhyay, Baiju Kalesh & Anirudh Laskar, Mint 16/11/10

Life Insurance Corp. of India (LIC), the country’s largest financial institution with an asset base of Rs12 trillion, is running a valuation deficit of around Rs14,000 crore in three plans of its guaranteed-return annuity policies—Jeevan Dhara, Jeevan Suraksha and Jeevan Akshay. Not all plans under these three brands are affected.

There are at least 1.3 million customers of these three plans, but none will be affected.

In a parallel development, all investments made by LIC during fiscals 2007-08 and 2008-09 are under the government’s scanner, following complaints made about its investments in a few companies.

The finance ministry is also closely looking at the exposure of its subsidiary, LIC Mutual Fund Asset Management Co. Ltd (LIC MF), to liquid and money market schemes that led to a loss of Rs120 crore. “The unitholders have nothing to worry. We’ll fix the responsibility and take stern action (against those responsible),” said a ministry official familiar with the development, who asked not to be identified.

Another person, who also did not want to be identified, said “heads will roll” in LIC MF.

While LIC MF has disclosed its loss in its half-yearly earnings and reported this to the capital market regulator, the notional loss or valuation deficit of LIC’s three guaranteed return pension schemes is not mentioned in its balance sheet as the insurer does not disclose its profits or losses across segments.

These plans were launched in the 1980s and the 1990s with assured returns of 11-12%, but with the drop in interest rates the actual yield on investments is much less than what investors have been earning. They were launched under the Jeevan Dhara, Jeevan Suraksha and Jeevan Akshay brands. Subsequent schemes launched under the same brands are not suffering from any notional losses.

These three loss-making old schemes are annuity plans, offering periodic payments after the retirement of a policyholder. They address the longevity risk and in some cases, inflation risk in a limited manner.

As the payout phase is usually long and uncertain, such schemes require the matching of assets and liabilities over a fairly long period.

“The valuation gap varies according to the movement of interest rates. In future, it can widen or even shrink. At the current interest rate scenario, the net present value of the deficit for these schemes, which will expire after a few decades, is around Rs14,000 crore,” said an LIC official, who asked not to be named.

Apart from the interest rate trend, the mortality rate will also have a bearing on the actual loss that LIC will suffer eventually. Mortality rates have been progressively coming down and this means longer payouts to the investors. The LIC official said that there is no plan to discontinue these schemes and added that LIC has a solvency margin of Rs46,000 crore and this is being used to take care of the valuation gap. “We’re using surpluses to make good this gap and not using other policyholders’ money,” he said.

A senior Insurance Regulatory and Development Authority (Irda) official said the regulator would not have approved these LIC schemes had it been in existence when they were launched. “There is indeed a deficit… This is not a good practice. We’d not have cleared such products if they were to come to us for approval,” the Irda official said, asking not to be identified.

“It would be unwise for LIC to build up such losses in their accounts. Pension funds are required to be handled very carefully,” he added.

If interest rates keep falling and the people covered under these LIC policies do not claim their incomes, the losses could build up further. “If it calls for a corrective action, we’d certainly act,” said Irda chairman J. Hari Narayan. Irda came into being in 1999.

The schemes

LIC introduced two personal pension plans, a deferred pension plan by name Jeevan Dhara and an immediate pension plan by name Jeevan Akshay in 1987-88, offering 1% assured return per month. The government had allowed premium on these two plans up to Rs40,000.

Both plans had managed to attract millions of customers due to tax incentives offered. Investments in such schemes were exempted from one’s income while computing tax. Demand for the schemes continued till 1992, when the government withdrew the tax incentive.

In 1996, once again, LIC introduced a deferred pension plan, Jeevan Suraksha. The government allowed premium of up to Rs10,000 for the policy.

The latest data available for these schemes shows that till March 2003, LIC had nearly 1.3 million customers covered under them.

The arithmetic

The premium money collected under annuity and pension plans is predominantly invested in government securities and highly-secured corporate bonds; some portion is also invested in equity.

Interest rates in India were regulated until 1997–98, when the medium and long-term rates were approximately 12-13%. Since then they started falling and simultaneously, the mortality rates too fell as life expectancy increased. Currently, the yield on the government’s benchmark 10-year bond is about 8.1%.

When an insurer launches a guaranteed annuity product, it assumes that the securities where the premium money is invested are fairly long-term in nature and will mature roughly during the payout phase (the period when the annuitants start claiming their income).

If investments mature before the people covered die or start claiming their income, the insurer needs to reinvest the money in other securities. If the reinvestments fetch interest rates lower than the returns guaranteed by the insurer, it starts incurring huge losses. The losses keep multiplying year-on-year and if the interest rates keep falling, the company may be badly hit.

“The interest rates fell more steeply than we had expected and the life expectancy has increased to 90 years for the policyholders,” the LIC official said.

Solvency issues

In order to ensure that the life insurers in India are capable of honouring claims against any of their policies any time, Irda stipulates that firms must maintain a solvency margin. The solvency margin is simply the excess of the value of assets over the value of life insurance liabilities and other liabilities of policyholders’ and shareholders’ funds.

Irda also specifies that for pension schemes, an insurer is required to recognize the risk of decline in future interest rates.

LIC has an overall solvency margin of Rs46,000 crore currently. A member of the Institute of Actuaries of India, who had earlier worked with LIC, said solvency margins are prudential measures and may not be sufficient to handle an insurer’s overall liabilities. An insurer needs to ensure it has the right kind of reserves, reinsurance or derivatives to back its guarantees credibly as far as annuities are concerned, he added, asking not to be identified.

The valuation deficit at LIC is somewhat reminiscent of the infamous US-64, the assured return scheme of the erstwhile Unit Trust of India (UTI), the nation’s oldest MF that crumbled under the burden of assured payouts to the millions of investors in US-64. The government had bailed out UTI and bifurcated it into two separate entities—Special Undertaking of UTI for managing all the tax-free assured return schemes, and UTI Asset Management Co. Ltd for managing the assets under other MF schemes.

The LIC official said that “it’s not fair to compare (LIC’s schemes) with US-64” as investments made by the pension schemes are all held to maturity and LIC does not need to value them in accordance with their market price or follow the so-called mark-to-market (MTM) accounting practice.

Losses in MF

LIC MF has posted a Rs120 crore loss following a new norm of capital market regulator Securities and Exchange Board of India (Sebi) that directs all MFs to value their investment in all securities maturing 91 days and above on an MTM basis.

In its effort to enhance transparency in valuation of debt schemes, Sebi in February had ordered all MFs to value all money market and debt securities, including floating rate securities, with residual maturity of up to 91 days on the basis of their market value.

Nearly 60% of the MF industry’s assets are in debt securities. The Rs7.13 trillion industry invests money under income schemes, liquid and money market schemes in such securities. At the end of September, LIC MF’s average assets were Rs19,726.97 crore and Rs16,911.18 crore of this was in debt funds, says Value Research, a Delhi-based MF tracker.

“We’ve a substantial holding in long-dated securities under our mutual fund business. We’re now strengthening our mutual fund team. Actions are being taken,” the LIC official said.

Sushobhan Sarkar, who used to head LIC’s MF business, has recently been made the head the insurer’s international operations, and Mohan Raj, an executive director, is now heading the MF business.

Govt investigation

A three-member panel constituted by the finance ministry is closely looking into all investments made by LIC in 2008 and 2009. Tarun Bajaj, joint secretary (insurance and banking), department of financial services; Sanjeev Kumar Jindal, director, department of financial services, and Ravneet Kaur, joint secretary (banking and insurance) are the members of the panel.

R. Gopalan, financial services secretary, said: “This is a routine investigation. Millions of policyholders’ money is involved and we should act responsibly.”

“Whenever there’s any complaint, the government examines if there is any merit in it. If there are verifiable facts, the government questions and checks the investment books. One of the recent complaints regarding LIC’s investments involved four to five firms. The investigations are going on and we’re cooperating fully,” the LIC official said.

A series of discussions between Mint and a number of LIC officials disclosed that LIC’s equity investment portfolio includes investments in 475 unlisted firms of which 14 are strategic investments, including those in the National Stock Exchange and the Bombay Stock Exchange.

The book value of such investment is around Rs1,521 crore.

Currently, LIC holds equities of at least 1,000 companies and the market value of these investments stood at Rs3.75 trillion as on 30 September.

“Our holdings are fairly long term in nature. Naturally, there is always a possibility of companies getting delisted, turning the stock illiquid,” a second LIC official said last week, asking not to be identified.

He also said, “There is no loss-making investment and if required LIC can liquidate its stake (in such companies) at substantial profit.”

However, another person familiar with LIC’s investments in illiquid stocks said the insurer is trying to “dispose of such investment fast at best possible way”. This person, who doesn’t work for LIC and asked not to be named, said no new investment is made by the insurer in any firm unless it is listed and has a track record of paying dividends for three consecutive years.

The insurer has an investment committee that meets roughly once in six weeks. Gopalan is one of the members of the committee.

According to Irda rules, a life insurer is permitted to invest at least 50% in government securities, 15% in securities of infrastructure-related companies and projects, and the remaining 35% in equities, non-convertible debentures, commercial papers, certificate of deposits and MFs.

The insurer plans to invest nearly Rs2 trillion this fiscal, including equity and other instruments. LIC’s net profit went up by 11% to Rs23,478 crore during 2009-10 against Rs21,152 crore in the previous fiscal.

Mint 13/7/10

Have a health insurance policy from a state-owned insurer? The next time you make a claim, remember to carry some cash even if you have a cashless policy, especially if you are visiting a big private sector hospital.

Four state-run insurers have withdrawn cashless facility from many private sector hospitals including big names such as Apollo Hospitals, Max Hospitals, Batra Hospitals and Escorts. It was first reported by The Times of India on Sunday. The reason, according to the insurance companies, is the twin rate card that some hospitals run. They charge patients carrying an insurance cover higher for the same procedure than others who may not have an insurance policy. Says N.K. Singh, general manager, Oriental Insurance Co. Ltd: “Currently, two rates are being quoted by the hospitals. For patients having insurance, a slightly escalated rate is charged. To sustain these escalated claims, we would have to increase our premiums. Also, this is not good for policyholders as he also loses out by way of a decreased sum insured for that year.”

With claims as high as 130-140% of premiums, the companies have been working on a solution for some time. Now, Oriental Insurance, New India Assurance Co. Ltd, National Insurance Co. Ltd and United India Insurance Co. Ltd have formed a preferred provider network (PPN) of hospitals that have agreed to charge within a certain price band. The PPN hospitals will continue to enjoy the cashless facility, but those outside, and this is where you need to begin worrying, will not. The big hospitals mentioned earlier are out of PPN for now as negotiations are still going on and that is where most of the urban mass affluent go with their ills and ailments. You will have to resort to the earlier practice of paying up at the hospital and then claiming reimbursement.

Considering that 60% of the health insurance business is still handled by state-run insurers, there is a huge chance that you will be affected by this change in rules. In order to bring some standardization in the way hospitals charge, state-run insurers have entered into pricing agreements with empanelled hospitals. Adds Singh: “We have spoken to our empanelled hospitals and have agreed on a fixed rate for 42 major medical procedures. The rates have been agreed upon depending on the hospital category, which is decided by the location, number of beds and facilities offered. All the hospitals that have agreed to this rate come under PPN and we will continue to offer cashless facility to them.”

Since the big names are conspicuous by their absence in this list of PPN and they account for 80% of the claims, a crisis is brewing in the industry and you are going to pay the price.

For those of you who prefer to go to one of these hospitals but have a health policy with a state-run insurer, the claim procedure may not be as smooth as it used to be. You will now have to be an active interface between the two parties and get your medical expenses reimbursed. Here’s a quick guide to what you would need to do in such a situation.

Reimbursement process

Typically, a health insurance policy reimburses expenses incurred during, before and after hospitalization. When you need to make a claim through the reimbursement mode, you need to file all the original documents with your third-party administrator (TPA), the intermediary who settles the claim between the hospital and the insurer.

These documents include discharge summary report, investigative report, scans, bills and receipts. In order to file the claim, you need to inform your insurer within seven days from the day of discharge and file the claim within the next 30 days.

Says Deepak Mendiratta, managing director, Health and Insurance Integrated, a health insurance consulting organization: “For planned medical procedures, insurers may also want you to intimate them 24 to 48 hours before you get admitted. However, after about a month your insurer may refuse to settle your claim unless you have a strong reason for delaying the claim filing procedure.”

The TPA gets your documents validated. On the non-medical side, your credentials are checked and on the medical side, TPAs look out for any policy exclusions or pre-existing diseases. Normally, this process takes about a month after which you get a cheque.

Remember that this process can get terribly delayed if the TPA finds any disparity and raises a query. The disparity could arise on account of non-submission of original documents or incomplete documents, claim on account of a pre-existing disease or a policy exclusion (the list of ailments that are not eligible for the cover as per your policy documents). The onus of filing the claim rests on you and, therefore, you need to ensure that you have all the documents in place.

Cashless process

If your hospital comes under PPN, you will still be able to avail the cashless facility. Though standardizing rates are still being worked out, that may not affect your claim process because you are not supposed to spend a single rupee on your own. In the hospital, you have to show your TPA card and fill the authorization form. The hospital then takes it up with the TPA. The TPA will check the documents and approve or reject the authorization. In the meantime, you will be admitted to the hospital and your treatment will begin. If the TPA rejects the authorization, you will have to foot the bill and then follow up with the TPA. On approval, your treatment is cashless.

At present, private insurers are not a part of the PPN system and are still offering cashless treatment to their policyholders. Says
Neeraj Basur, director, finance Max Bupa Health Insurance Co. Ltd: “We don’t have TPAs and we directly engage with the hospitals. This helps us to know their pricing and therefore we can assess if they are charging more from policyholders.”

Mint Money take

In case you have a claim coming up in the near future and have a policy from state-owned insurers, choose your hospital carefully or organize cash before you check in.

Mint 29/6/10

New rules seek to make it less attractive for insurance agents to hard sell Ulips

India’s insurance regulator on Monday announced comprehensive changes in the rules governing the controversial, but popular unit-linked insurance plans, or Ulips.

The new rules seek to make it less attractive for insurance agents to hard sell these hybrid instruments that offer a combination of insurance and equity investments to buyers.

The two most important changes made by the Insurance Regulatory and Development Authority, or Irda, are that insurers will have to spread the selling commissions they pay agents evenly over the lock-in period for a Ulip product and they will have to increase the lock-in period from three-five years. This will replace the current system of high upfront commissions that act as incentives to push Ulips into investor portfolios.

These changes come 10 days after Irda won a regulatory turf war with the Securities and Exchange Board of India on which agency had the right to regulate Ulips.

Insurance firms will have to adjust to the new Ulip regime.

“It will mean more capital for the industry. It will mean less profits,” said G. Muralidhar, chief operating officer of Kotak Mahindra Old Mutual Life Insurance Ltd.

The decision to increase the lock-in period for policyholders will also help ensure that customers get adequately convinced that Ulips are not really meant for making quick money even though the premiums they pay are invested in shares.

G.N. Agarwal, president of the Actuarial Society of India, said: “People were using certain loopholes in the law to pay more commissions. Now, the regulator has tried to address these issues. These (rules) will work until the new loopholes are found. That is what is called innovation.”

Mint had reported on 22 June that Irda was tweaking the existing norms to abolish the practice of hefty upfront commissions.

Irda mentioned in its circular that all regular premium Ulips shall have uniform/level paying premiums. “Any additional payments shall be treated as single premium for the purpose of insurance cover.”

This change is significant as many companies have been structuring products in such a way that the first-year premium is substantially higher than premium in subsequent years. This allowed insurance companies to pay high upfront commissions to agents. “But by saying that premiums should be uniform for all years, Irda has put an end to this practice,” said Agarwal.

Since agents’ commission on single premium policies are capped at 2%, taking the incentive out of such top-heavy premium structures, the commission charges will be significantly lowered.

In its earlier attempt to reduce upfront charges in Ulips, Irda had capped charges at 3% at maturity for products having tenures of up to 10 years and at 2.25% for products of above 10-year terms. Since insurers started offering such products charge benefits only on the maturity of the policies, Irda’s attempt to reduce upfront charges failed. But now, Irda has stipulated such ceilings on charges for every year of the policy, reducing from 4% at the end of five years of the policy to 2.25% from the 15th year onwards.

“Our proposal should bring down the first-year agent commission from 35% to 10-15%,” an Irda official had told Mint on 22 June. “Total commissions that insurance companies pay agents selling Ulips should come down—from the current 57.5% over five years to 30-32%,” the Irda official had added.

“Insurance companies reward long-term behaviour. Now,the calibration of lapsation has a significant impact. Earlier rule gave some leeway to insurers to design policies to motivate consumers to stay for the long term. Now Irda has removed the flexibility for insurers. We have a lot of work to do,” said Muralidhar.

Furthermore, Irda has mandated insurers to provide a mortality or health cover on all Ulips and ordered companies to offer a minium sum assured of 125% of single premium for policyholders buying Ulip below the age of 45 years. For entry above the age of 45 years, the minimum sum assured will be 110% of the single premium.

Irda said that all Ulip pension or annuity products shall offer a minimum guaranteed return of 4.5% per annum on the maturity date. This guaranteed return is applicable on the maturity date, for policies where all due premiums are paid.

P. Nandagopal, CEO, IndiaFirst Life Insurance Co. Ltd said, “The defining of a guaranteed return of 4.5% seems a little risky, especially in very long-term policies. Though it might look easy at the present interest rate levels, it could come into trouble if rates fall. It would have been better if it was linked to a benchmark.”

Also, Irda has said that the maximum loan amount that can be sanctioned under any Ulip policy shall not exceed 40% of the net asset value in those products where equity accounts for at least 60% of the total share and shall not exceed 50% of the net asset value of those products where debt instruments accounts for at least 60% of the total share.