Birla Sun Life – ULIP Scheme -A Scandal?

Birla Sunlife Life Insurance

I have been given complete details by a Friend who had joined Birla’ ULIP,  with annual premium of Rs. 20,000/-.

Company charges around 40% as monthly management charges.

BSLI Universal Health Insurance Plan

It must be no doubt company would have said this in the Brochere somewhere as non noticable area.

SEBI- IRDA- Is there no respite?

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11 Responses to Birla Sun Life – ULIP Scheme -A Scandal?

  1. Mahesh says:

    Birla Sun Life to have simpler Ulip offerings
    11 Dec 2009, 0328 hrs IST,ET Bureau

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    MUMBAI: Birla Sun Life Insurance (BSLI) has decided to reposition all its unit-linked insurance plans following the insurance regulator’s decision to cap charges.

    Instead of having highly flexible schemes, the company will now have a bouquet of plans under a new programme christened Swagatam. Each plan will be standardised and structured so that it can be explained and sold with less effort. The biggest advantage of the new product is the higher return following the reduction in charges.

    “We have decided to take advantage of the Irda directive to cap charges on all ULIPs as an opportunity to enhance competitiveness. Based on feedback, we are revamping our entire portfolio to make them simpler to understand,” said BSLI CFO Mayank Bathwal.

    Instead of offering the same product with a variety of investment options, the company has decided to pre-package products according to the buyer’s profile and sell products that are specific to the individuals requirements.

    For instance, the earlier Saral Jeevan has been replaced with three plans, Saral Jeevan Wealth, Saral Jeevan Health and Saral Jeevan Guaranteed option. “Those who have a low risk taking ability can go for the guaranteed option under the same scheme,” he added.

    The cap on charges imposed by the regulator has forced all insurers to cut distribution costs and reduce frills on policies. However, since the amount being deducted from policyholder contributions has come down, the overall return to policyholder has improved.

    In absolute terms, the returns under BSLI’s reworked plans on maturity can be higher by up to 10 per cent compared to BSLI’s old policy. For instance, under the earlier Saral Jeevan, with an annual premium of Rs 20,580, a 35-year old could buy a Rs 2.2 lakh policy that would accumulate savings ranging from Rs 5.6 lakh to Rs 8.9 lakh at maturity. Under the new Saral Jeevan, the same policy holder would get a sum insured of Rs 1.2 lakh and accumulate savings ranging from Rs 6.18 lakh to Rs 9.57 lakh. The returns are calculated estimating a yield of six per cent at the minimum side and 10 per cent at the higher end.

    “The biggest contributor to the charges are the fund management charges which are fixed for the entire term of the policy. We have decided that the ceiling on fund management charge 135 basis points will apply not merely on new plans but on all existing policies as well” said Mr Bathwal.

  2. Mahesh says:

    Birla Sun Life / Saral Jeevan Complaints – ULIP Misselling
    View all Birla Sun Life / Saral Jeevan complaints
    Birla Sun Life / Saral Jeevan
    Posted: 2008-10-31 by Karthick D Send email
    ULIP Misselling
    Hi All,

    I bought a policy with Birla sunlife last December (Dec 2007). I have to admit that I am a layman when it comes to ULIPs. I was completely brainwashed by one of Birla sunlife’s agent that Saral jeevan offers excellent returns (30%). I bought the policy on December 12th. Policy number is 001333454. Premium amount was Rs 50145 (Fifty thousand one hundred and forty five). I received the policy document promptly and was schocked to see that there were monthly charges of Rs 1551.39 on the policy. A net amount of 18616.68 Rs would be deducted towards charges in a year, which is nearly 40% of the premium that I have paid. When the agent came to my house to get my signature and cheque, he gave me a brochure which HAD ABSOLUTELY NO MENTION OF CHARGES. I felt cheated. I called him up and told him to cancel the policy. He told me that there are indeed charges in the policy. However, they are applicable only after the policy starts yielding returns..meaning the charges will be deducted from the profit and not from the premium amount. The premium amount of Rs 50145 will remain intact. After three months, I placed a call with Birla sunlife and I was startled to know that they have indeed deducted monthly charges on the policy. I got furious and asked them to cancel them the policy. They cooly replied that the surrender value of the policy is in negative.. meaning that I have to pay more money to cancel the policy. Ridiculous!!

    I contacted my agent and he said that he will do the necessary to cancel the policy and that I will get my Rs 50145 after 3 years. I contacted the helpline and they said that there is no way I can get the money. They said that I have signed the policy and had a 15 days grace period to get out the policy. When the agent came to my house to get the form filled up he gave me a template to fill up and took just my signatures on the application form. I now know why he gave me a template to fill up and not the actual application form. The application form has all the charges listed in it. He wanted to deliberately hide the information about the charges on the policy.

    This 50145 Rs is my hard earned money. I have worked round the clock to earn this money. I decided to fight against this misselling. I launched a complaint with Birla sunlife. They said that they will escalate it to the highest level possible. Finally I got a letter stating that my claim is not valid as I have signed the application form.

    I have gone through a lot of mental agony over the past 10 months. As you can recall, I had invested about 50145 Rs in December 2007. Currently the value of the fund ( as of today – 31st October) is Rs 10984. Can you believe this? I am not going to renew this policy. No person on earth would renew this policy.

    Birla Saral Jeevan is a clear case of ULIP misselling. But I am a common man and can do little against a big corporate house like Birlas. I will however advice you all not to buy this policy.

    Better go in for LIC policies.. They are far better in terms of coverage and benefits. I would like to end by saying that the I feel cheated, deeply hurt and never expected this from a corporate house of Birla’s calibre.

    I would like to know the IRDA’s stand on ULIP’s misselling. Such things can happen only in a country like India.

    Best Regards,
    Karthick

  3. Mahesh says:

    Irda to cap surrender charges on Ulips, standardise terms
    BS Reporter / Mumbai May 19, 2010, 0:39 IST
    In what would make unit-linked insurance plans (Ulips) more investor-friendly, the Insurance Regulatory and Development Authority (Irda) on Tuesday proposed to cap surrender charges and standardise the revival period for polices that had lapsed.

    In the draft guidelines, the regulator suggested the surrender charge during the first year of the policy be fixed at 12.5 per cent of the premium paid in case the policy term is less than 10 years. For longer duration policies, surrender charges are proposed to be capped at 15 per cent. At present, insurers levy up to 60 per cent surrender charge in the first year, which drops to 30 per cent in the second year.

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    “It (the draft circular) provides the ceiling on surrender charges instead of leaving it to the discretion of the insurers,” Irda said.
    In addition, the regulator, under pressure on regulation of Ulips, which are investment-cum-insurance plans, has proposed that the grace period for payment of premium be fixed at 30 days. For policies involving monthly premium payment, the grace period is expected to be fixed at 15 days. This is in line with other life insurance policies, though there are no fixed norms for Ulips at present. The reforms proposed on Tuesday are in line with the initiatives announced by Irda since April 9, when the Securities and Exchange Board of India (Sebi) asked 14 insurance companies to register with it or stop selling and renewing Ulips. The decision has since been kept in abeyance and the matter is now being heard in the Supreme Court.

    Irda is also working on standardising the Ulip terms. It is expected to come out with the new norms in the next couple of months.

    As part of the Ulip revamp, Irda has already increased the lock-in period from three years to five years. The draft norms issued on Tuesday said that for Ulips with a term of less than 10 years, there should be no surrender charges from the sixth year, and for policies with a term of over 10 years, the surrender charges are proposed to be removed from the seventh year.

    “This will bring more transparency in the product and policyholders will know how much they are paying for surrender,” said G N Agarwal, Chief Actuary at Future Generali Life Insurance.

    On the issue of checking lapses, the regulator said a policyholder will have the option to revive a policy and continue only with the risk element of the cover.

    Alternatively, the policy holder can continue to the extent of the risk cover and withdraw completely from the fund.

    The regulator has asked all insurance companies to issue a notice to policy holders to exercise these options within 30 days of receipt of such notice. Also, if the policyholder does not renew his policy, he will continue in the fund with risk cover, and the risk charges and fund management charge will be recovered from the corpus.

    At present, if a policy lapses, the fund goes to the shareholders account after the third year of the policy. A life insurance company has to maintain two accounts – policy holders’ account and the shareholders’ account. The surplus in the policy holders’ account is paid as bonus to the policy holders, while the surplus in the shareholders’ accounts is used to pay dividend to the shareholders.

    But, going forward, Irda has proposed that in case a policyholder does not opt to be part of the fund, the fund value will be credited to “Lapsed Policy Fund” and the amount will be invested in a fixed income instrument, earning at least the saving deposit interest rate. The interest on the fund set aside will be allocated to the lapsed policy fund only and will not be available to the shareholders. This will ensure that shareholders do not profit from lapsed policies.

    Last year, of the total policies sold, 10-15 per cent of the policies lapsed, as policy holders did not pay renewal premium. “The percentage of lapses had gone up substantially. To ensure that policy holders do not lose their money, we have standardised the terms of surrender,” said an Irda official.

  4. Mahesh says:

    Transparency, charges more vital than Ulip regulator
    By Dhirendra Kumar Apr 18 2010
    Tags: IRDA, turf, ULIPs, War, Insurance
    Fundline
    The so-called turf war on unit-linked insurance policies (Ulips) that the Securities and Exchange
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    Board of India and the Insurance Regulatory and Development Authority have been fighting over has now taken on a life of its own. In reality, just about the least important thing is who regulates Ulips, while the most important thing, or rather, the only important thing-is that investors understand what they are getting into and make the choices that are best for them.

    I find that there’s a great deal of misinformation floating around about Ulips and why exactly are investment advisers so critical of them. Ulip proponents generally give a set of reasons that in their opinion invalidate criticism of Ulips.

    I’d like to briefly describe why I think these arguments are not valid.

    Argument: Ulip expenses have been lowered by Irda. Ulip expenses are now down to just 3 per cent for Ulips of up to 10 years and 2.25 per cent for longer ones. Mutual funds, by comparison, have higher fund management charges.

    Reality: The way Irda has framed the rules, 2.25 or 3 per cent is effectively the average over the entire lifetime of an Ulip. The charges are heavily front-loaded. During the first year, these charges are as high as 40 to 70 per cent. If the customer cannot continue with a policy for any reason, then his real expenses are far higher. And as it happens, a huge proportion of policies lapse during the earlier years. The front-loading has no logic, except to enrich insurers and agents. And fund management charges being lower than mutual funds is a not a full comparison. In mutual funds, total expenses are capped at 2.25 per cent for equity funds and lower for other funds. These are not comparable to the fund management charges of Ulips because Ulip customers also pay premium allocation charges, policy administration charges, mortality charges, and for guaranteed Ulips, guarantee charges. Comparing fund management charges alone is a joke.

    Argument: Ulips have led to a massive rise in insurance penetration in India.

    Reality: Insurance means insurance, in the sense when the insured person dies, his family gets money to pay for food, rent and education. In a country with as little social security as ours, the growth of insurance has to mean the growth in the reach and quantum of risk cover for lives. To call a non-insurance, market risk-bearing product such as Ulip insurance and then present it as evidence of the growth of insurance is simply dishonest.

    Argument: The insurance industry provides a huge amount of employment. Nearly 30 lakh people have found work through insurance.

    Reality: If Ulips were a sound financial product, then this would be wonderful news. Since they are not (see above reasons), this issue is a complete red herring. It is not the responsibility of Ulip customers to provide agents employment by giving away vast proportion of their premiums as commission. If crores of people’s money has to be misinvested to provide employment for lakhs of people, then it’s better for those lakhs to find some other, more productive employment.

    Argument: Ulip fund flows are important for the stock market and for infrastructure development.

    Reality: The same as the employment argument. It is not the responsibility of Ulip customers to buy expensive and non-transparent investment products so that the stock markets can be boosted. Wouldn’t it be possible to create infrastructure if Ulips could be made more investor-friendly.

    I find the last two points to be particularly dishonest. They somehow imply that if Ulips were made more investor-friendly, then lakhs of people would immediately become unemployed and money would stop flowing into development. However, Ulip critics like myself have nothing against the concept of Ulips. If Ulip cost is brought down and made non-front-loaded; and if transparency is enhanced to the level of other asset classes, then they would be a very good product. The fact that the Ulip’s enforce gradual systematic investment plan-style investments could actually make them a superior product.

    (Dhirendra Kumar is CEO of Value Research India. His column

    appears every Monday)

  5. Mahesh says:

    Cap on ULIP charges: How it affects YOU
    Deepa Venkatraghvan July 24, 2009
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    AFTER much heartburn over high fees and charges on ULIPs (unit linked insurance plans), there’s finally some good news for investors! The insurance regulatory body, the IRDA, has implemented well defined changes that can make a significant impact for investors looking to invest in ULIPs. According to the norms, there will be a cap on overall charges that the insurance companies can impose upon the ULIPs.

    The norm
    For all ULIPs which have a maturity of up to 10 years, the difference between the gross yield and net yield would have to be maintained at 300 basis points or 3 per cent. Out of this, the investment management fee would not be more than 1.5 per cent. For ULIPs with a tenure longer than 10 years, the overall cap would be 2.25 per cent with an investment management fee cap of 1.25 per cent.

    Remember that charges here would include allocation charge, administration charge, mortality charge and all such charges by any other name.

    You will notice that the cap on overall charges become lower as the insurance term increases. This move is expected to encourage consumers to opt for long term insurance and investment rather than a short term plan, which is low in utility. This is expected to come into effect by October 1, 2009.

    The jargon
    The jargon here are the words ‘gross yield’ and ‘net yield’. So let us simplify them:
    Gross yield: This is the yield generated by the ULIP before all charges are deducted
    Net yield: This is the yield generated by the ULIP after all charges are deducted

    Illustration
    Let us take an example where the annual premium on a ULIP is Rs 20,000 and the term is 10 years. Let us assume that the charges are as follows:
    – Allocation charges
    First year allocation charge: 25 per cent of premium
    Second year allocation charge: 15 per cent of premium
    Third year allocation charge: 5 per cent of premium
    Fourth year onwards allocation charge: 3 per cent of premium
    – Administration charges: Rs 30 per month
    – Fund management charge: 1.5 per cent of fund value

    Also let us assume that the fund grows at a rate of 10 per cent per annum. For the ease of calculation we have ignored mortality charges.

    We need to arrive at two numbers, the gross yield and the net yield.
    Gross yield: If the fund grows at 10 per cent every year for 10 years, the fund value at the end of 10 years without taking the impact of charges would be Rs 3.3 lakh. That would translate to an yield of 11.98 per cent.
    Net yield: If the fund grows at 10 per cent every year for 10 years, the fund value at the end of 10 years after taking the impact of charges would be Rs 2.7 lakh. That would translate to an yield of 8.07 per cent.
    Difference: The difference between gross yield and net yield is 3.91 per cent.

    Now, post the new norms, this difference cannot be more than 3 per cent. We did a little bit of extrapolation and found that the charges need to be drastically reduced if the yield criteria must be met. The new charges would have to be:
    – Allocation charges
    First year allocation charge: 15 per cent of premium
    Second year allocation charge: 10 per cent of premium
    Third year onwards allocation charge: 1 per cent of premium
    – Administration charges: Rs 26 per month
    – Fund management charge: 1.5 per cent of fund value

    By following these charges, at the end of 10 years, the fund value would be Rs 2.8 lakh instead of the current Rs 2.7 lakh, a saving of Rs 10,000. Of course, this might appear like a small amount, but the difference will increase if the existing charges are far more than what we have assumed above.

    Loose ends
    Having done this calculation, there are still some doubts. What happens if the ULIP gives only 3 per cent returns over the period of 10 years? The company would have already deducted charges, so how will they compensate the policyholder? Experts say that we would need to wait for clarity on these issues.

    Tips for existing investors
    Abitha Deepak, Head of Content & Research at BankBazaar.com offers these tips:
    – Existing investors who have just started out should try and bide time until an opportune moment like say at the end of 3 or 5 year term and opt out of the policy factoring in how much money they are likely to lose. They can then invest the money in a brand new ULIP policy and benefit.
    – Those who are well into their term with a few years left need not worry as the charges will anyways dwindle to around 3 per cent then.

    Disclaimer: While we have made efforts to ensure the accuracy of our content (consisting of articles and information), neither this website nor the author shall be held responsible for any losses/ incidents suffered by people accessing, using or is supplied with the content.

  6. Mahesh says:

    How ULIPs and Mutual Funds make you pay
    Posted by Deepak Shenoy
    When you buy at the supermarket, you cringe if the cashier adds one item with the wrong price. You say “But it says 20% discount!”, and ensure that the cashier books the discount, changes your bill amount and pay accordingly. You would never let a petrol pump operator fill even 100 ml. less than you pay for. But when it comes to financial products, if you are like the vast majority, you get taken for a major ride and in most cases, don’t even read the fine print before you sign up. Even I have done this so you’re not alone.
    Consider that:
    a) you pay a lot more for a financial product (ULIP or mutual fund) than for petrol or vegetables.
    b) Your savings come back to help you in the later part of your life (unlike petrol or vegetables).

    It seems illogical that you should pay less attention to the fine print of a financial instrument than for your vegetables!

    Mutual funds and ULIPs both make you pay in the form of unintelligible fees disguised in their documents in different ways. Let me show you how.

    ULIP Charges
    ULIPs have an amazing array of charges that you aren’t necessarily aware of unless you read their documents carefully. Let me show you how, for a premium of around Rs. 50,000 a year, you will be made to pay fairly hefty charges.

    Most ULIPs charge you a Premium Allocation Charge. This simply means a charge that you pay to have your premium allocated (kind of like your vegetable vendor telling you: You need to pay Rs. 10 for 1 kg, and Rs. 5 for the privilege of buying from me). Actually it encapsulates the commission that your friendly agent makes on the deal, and a little bit more.

    But it can be huge, and the word play can get you. Allocation charge, which some ULIPs use, is the percentage of the money you PAY. Allocation rate, however, is the percentage of your money that is actually used. For instance, HDFC’s Young Star Plus plan says their premium allocation rate is 40% for the first year (for a premium less than 2 lakh a year). Meaning, you pay 60% as commissions!!! Consider that, for a policy of 20 years, you are effectively paying 3% a year, much more than a mutual fund. And you pay that upfront instead of amortizing the cost over hte whole plan, meaning you don’t even get the benefit of paying lower due to inflation.

    Most ULIPs tell you that you will make money if you are loyal to them – i.e. when you stay with them for a long time. I wonder why, if they ask you to be loyal, that they ask you for all the commissions upfront? If you get benefits when you stay for the long term, why shouldn’t their benefits also be linked to the long term?

    Not only is it unfair, it is also ridiculous – because the power of compounding is not being used. Investment today multiplies at a higher rate than money invested later – so the logic in taking away most of your money today and telling you that they levy very little future charges is financial stupidity.

    Some ULIPs, however tell you they have a 100% allocation rate. Like Aviva’s LittleMaster ULIP, for amounts above 25,000 a year. Sounds great? Hang on a minute. Firstly, this plan limits your sum assured to 10x the premium. Meaning, for about 50,000 per year, you get a cover of Rs. 500,000. Peanuts, honestly, because if you can pay 50,000 a year you need a lot more cover than 5 lakhs. Secondly, this plan has an Initial Management Charge – which is basically taking money from your first premium. Note: Aviva’s policies tend to spread the initial management charge over the entire term – meaning, they make this money over the term of your policy – which is a very nice thing for you since more of your money is invested.

    ULIPs also have mortality charges which is the amount you pay to have your life cover. ULIP mortality charges change every year (unlike a term plan) and they RAPIDLY increase after the age of 50. A 50 year old will typically pay 5 times the mortality charge for the same sum assured than for a 30 year old.

    You will also have policy administration charges – typically Rs. 50-60 per month. (why do they charge this? It’s so small it is ridiculous to charge the policy holder. Like saying “I need to staple your policy document together so please pay for the staples”).

    Then of course, there’s the Fund Management Charge, which is reflected in your NAV. Typically between 0.8% and 2%, this may look less than a mutual fund’s charges but when you add this and the other (non-mortality) charges together, things will look different.

    Finally, there’s the surrender charge. This is what applies should you surrender your policy before the policy term. This can get complicated, because people use such terms:

    Surrender Charge
    – on Initial Units: [1-(1/1.10^N)] * value of initial units, at the unit price, on the date of surrender
    – on Accumulation Units pertaining to regular premiums: [1- {1/(1 + x)}^N] * value of accumulation units, at their unit price, on the date of surrender. The variable x varies with the number of completed years premiums paid at the date of surrender:

    Sounds like Greek to you? It simply means they are finding innovative ways to take away more of your money. The above means that if you want to exit after paying 3 years premium of Rs. 50,000 each on a 10 year policy, and the X (which is given in the policy document) is 1.75%, you will be charged approximately 35,700 (assuming when you surrender, the net unit value is 150,000)
    Remember: If you stop paying your premium, your policy may “lapse”, but the fund value (minus surrender charge) MUST be paid back to you after three years from inception, or a small “reinstatement period”, typically two years (whichever is later). It is legally your money. Don’t let anyone tell you otherwise, and you can go to court to claim it as well.

    A major issue, which I’ve talked about earlier, is that ULIPs deduct some charges from your units, and some charges from their NAV. So at any given time you need to ask them both for the number of units you currently own, and the current NAV – and both can change anytime. In a mutual fund at least the only variable is the NAV.

    Mutual funds
    Mutual funds have not quite as many charges but they’re quite relevant all the same. Firstly the “entry load” is charged to you on buying units in a fund. This is the same charge even if you buy the first time or later, and typically vanishes when you invest more than 5 crores, in which case you are probably not the kind of person I mentioned earlier in this article.

    Entry load is actually commission given to the agent. Anyone can become an agent by becoming an AMFI test and getting certified. But even if you are an agent, you do not get commission on mutual funds taken in your own name! And they don’t excuse you from the entry load either. It’s illogical.

    For those funds without entry loads, there may be an exit load, meaning you pay if you get out of the fund within a certain time. Some funds have exit loads to protect themselves from redemptions but in passive funds like index funds, the concept of an exit load astounds me.

    Closed ended funds charge you amortised issue expenses if you exit before three years. Such funds basically take away 6% of your money upfront and charge it to you in bits and pieces daily, over a three year period. You can’t attempt to exit early because they will charge you the unamortised expenses on a redemption.

    The fund management charge of course varies by fund. Typical expenses are of the range of 1.5-2% for equity funds. Index funds are the cheapest here; since they require very little decision making, they should charge less. I say “should” because many charge a lot – upto 1.5%. Benchmark’s NiftyBEES, an exchange traded fund, charges you very little – only 0.8% as far as I know. Fund management charge is reflected in the NAV of the fund, and is not something you pay. But it’s good to be aware.

    I hope this opens your eyes to the various ways you pay for your own financial products. You may not be able to negotiate away these charges, but you should choose a product that does not try to take as much as it can and hide things in small print. Don’t trust anyone, including your advisor. Our legal system ensures that all such products MUST document all charges on the brochures and offer documents, all of which are available online. So if you’re reading this (and not yet asleep) you can read those documents as well.

    Happy investing. Caveat Emptor. (means buyer beware)

  7. Mahesh says:

    nsurance regulator caps charges on Ulips

    fe Bureau
    Posted: Thursday, Jul 23, 2009 at 0113 hrs IST
    Updated: Thursday, Jul 23, 2009 at 0113 hrs IST

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    Mumbai: Insurance Regulatory Development Authority (Irda) on Wednesday announced a cap on overall charges that life insurance companies can levy on subscribers of their unit linked insurance policies (Ulips).

    For those products which have maturity of 10 years, insurance companies have to maintain the difference between gross yields and net yields at 300 basis points.

    When various charges levied by insurers are added on to net yield, it becomes gross yield.

    “The difference between gross yield and net yield cannot exceed more than 300 basis points,” said Irda chairman J Hari Narayan. Of this, fund mangement charge cannot exceed 150 basis points.

    For those products which are of a tenure of over 10 years, the difference between gross and net yields cannot exceed 225 basis points, Hari Narayan said. The fund management charges cannot exceed 125 basis points, he added.

    Justifying lower cap on charges for longer term insurance Ulips, Irda said in a circular, “Insurance products are long-term saving vehicles and the policy prescriptions should help the customers to move towards long term savings-cum-protection rather than short-term ones.”

    On an analysis, it is established that the majority of the products have a tenure of 10 years and above and a smaller proportion is with a tenure of less than 10 years.

    In order to enable the customers to have a clear understanding of the product and to comprehend various features of Ulips, it is decided that Irda will prescribe one cap on all charges put together. This will also impart flexibility for the insurers and encourages further product innovation, said Irda.

    As of today, the private sector life insurers mobilise almost 80% of their premium by selling Ulips whose return depends upon the capital markets.

    Nitin Chopra, CEO, Bharti AXA Life Insurance Company Ltd, said, “The cap on Ulip charges at 2.25% for a gross yield of 10% over the long term, is a significant move for the Indian life insurance industry and its policyholders.

    It also encourages a long-term outlook towards life insurance amongst Indian customers and life insurers.

    TR Ramachandran, CEO & MD, Aviva India, said that with a cap on overall charges, the customers stand to benefit in the form of higher returns on their investment. Moreover, lower charges on products with a term greater than 10 years will provide further impetus to long-term policies.

  8. If Ulips can charge only 3% earlier

    My friends statements say

    Birla Sunlife charged around 670/ Per month in the first year- more than 40% of the premium paid.

    Second year 750 p.m i.e., 45% year

  9. Even IF YOU Take that it has charged close to Rs. 16000 out of 40,000 paid in two years would work very high.

  10. Cap on ULIP charges eased
    Mortality, morbidity charges removed from overall limit.
    Insurance companies may be the key beneficiaries of this move as they may see better long-term profitability on their products, relative to the earlier regime.

    Suresh Parthasarathy

    BL Research Bureau The Insurance Regulatory and Development Authority (IRDA) has finally addressed the concerns raised by the life insurance companies on the recent cap on charges on their market-linked plans.

    It has removed the mortality and morbidity charges for policies from the overall expenses cap that is applicable to unit linked insurance plans (ULIPs).

    Insurance companies may be the key beneficiaries of this move as they may see better long-term profitability on their ULIP products, relative to the earlier regime. With the new regulation, policy holders above 50 years may get a higher risk cover as their mortality charges may tend to be higher.

    The cap on net yield, proposed in the earlier circular, had prompted insurance companies to reduce their risk cover for older policyholders due to the higher mortality premium included in their premia, which had to be cross-subsidised from the investment.

    This circular also stipulates that insurers are not allowed to levy surrender charges on policies from the fifth policy year onwards. The regulator has also capped the fund management charge at 135 basis points irrespective of the duration of the policy.

    In the earlier circular in July, the charges on net yield were capped at 300 basis points for a 10-year duration and 225 basis points on 15-year duration. This included fund management charges not exceeding 150 basis points for a 10-year product and 125 basis points for policies above 10 years.

    Positive for customers
    The insurance industry has welcomed the changes. Mr Debashis Sarkar, Senior Director & Chief Marketing Officer, Max New York Life Insurance, has said the “IRDA’s latest circular on capping of charges for ULIPs will positively impact customer benefits. The exclusion of mortality and morbidity charges from the cap will ensure that there is no compromise on growth in sales of valuable life cover. The decision clearly indicates that IRDA wants life insurance to be viewed as a long-term protection product.

    “We welcome the clarification that mortality charges are not included in the cap. This allows insurance companies to continue to provide adequate protection to policy-holders which is a core objective,” says Mr T. R. Ramachandran, CEO & MD, Aviva Life Insurance India.

    Mr Kamesh Goyal, Country Manager, Allianz, and CEO, Bajaj Allianz Life Insurance, said: “We welcome both customer-friendly steps. Having one FMC limit would certainly bring more transparency in ULIP products.”

  11. ULIP products may turn hot on new fee cap
    The regulator’s move comes against the backdrop of complaints that ULIP charges are higher compared to mutual funds.

    Suresh Parthasarathy

    BL Research Bureau Unit-linked insurance plans (ULIPs), one of the hot products of life insurers, could turn attractive with the regulator, Insurance Regulatory and Development Authority (IRDA), imposing a cap on the charges that insurers levy on customers.

    The regulator’s move comes against the backdrop of complaints that ULIP charges are higher compared to mutual funds (products with similar investment strategy). ULIPs are now likely to become more competitive than mutual fund products.

    Currently, mutual funds are allowed to charge up to 2.5 per cent of assets under management under various heads as fees. With the cap on ULIP charges, insurers will soon offer products with a built-in mortality at just about 2.25 per cent, since most insurance products are long-term contracts.

    To illustrate the benefit under the new rule, take the example of an investor putting his money in a ULIP (about Rs 5,000 a month for a period of 180 months), assuming he currently gets a yield of 6.5 per cent, will have a maturity value of Rs 15.25 lakh. Under the changed regulation, his return will be higher at 7.75 per cent and could lead to a maturity of Rs 17.03 lakh – a gain of roughly Rs 1.75 lakh due to the new rule.

    New rule
    According to the new regulation, the charges on yield will be capped at 300 basis points for a product with tenor of less than or 10 years duration, of which fund management charges shall not exceed 150 basis points. For other contracts that are above 10 years, the difference between gross and net yields shall not exceed 225 basis points, of which the fund management charges shall not exceed 125 points.

    The new regulation will be effected from October 1, for all products approved by the regulator after this date and all the existing products that do not meet the requirements should be withdrawn or modified by December 31.

    Commenting on the new regulation Mr T.R. Ramachandran, CEO & Managing Director, Aviva Life Insurance India, said, “We welcome IRDA’s move as this is another positive step towards making ULIPs more transparent and favourable for customers. With a cap on overall charges, the customers stand to benefit in the form of higher returns on their investment. Moreover, lower charges on products with a term greater than 10 years will provide further impetus to long-term policies.”

    The new rule will have a positive impact on insurance products. It makes the ULIP products more attractive than similar products available in the market.The only concern is that the mortality charge is included in the overall charges and that might put pressure on the products, that has higher sum insured. For the aged investors, the mortality charge itself forms a major part of the charges and it might lead to cap on the sum insured to that customer, said Mr Srinivasan, Chief Financial Officer, Bharti AXA Life Insurance.

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