Health Insurance Forum

universal life insurance policies

by mahir on 16/11/10 at 12:00 pm

After tightening the norms for unit-linked insurance plans, or Ulips, the Insurance Regulatory and Development Authority is set to shift its focus to universal life insurance policies, fearing that the products may create another industry-wide controversy.Irda and capital market regulator Securities and Exchange Board of India , bitterly fought over the regulation of Ulips—a hybrid product that combines investment in equities and bonds along with an insurance component—till an ordinance settled the issue by asking Sebi to keep off Ulips.

Universal life insurance policies, like Ulips, combine investment and insurance. One part of the premium for such policies goes to buy life insurance and another gets invested in bonds or equities.The structure of these hugely complex products are somewhat similar to Ulips even though here both the premium and the benefits are variable. Here the investors also run the risk of the policy lapsing if they are not able to pay premiums that keep rising during the tenure of the policy.

A senior Irda official told Mint that a new set of regulations will be released in the next couple of months for such policies.“Universal life policies can be dangerous without a separate set of regulations. The customers can be exposed to very high risks unless stringent regulations are imposed on these investment-cum-insurance products,” added this person, who did not want to be identified.

Typically, the product has two elements—investment and insurance. The investment amount earns interest, but as the cost of insurance increases every year with the policyholder getting older, more money flows from the investment account to the insurance account of the policyholder.

As the policy holder gets older, more money is used for the insurance cover and less and less money gets invested. In such a situation, the premium goes up, and if the policyholder is not able to pay the higher premium to keep the policy alive, it lapses and the customer loses the money.A few Indian life insurers launched universal life insurance policies in 2009 after Irda capped Ulip charges.