A unit-linked insurance plan (ULIP) is a type of life insurance where the cash value of

a policy varies according to the current net asset value of the underlying investment
assets. It allows protection and flexibility in investment, which are not present in other
types of life insurance such as whole life policies. The premium paid is used to purchase
units in investment assets chosen by the policyholder.

ULIP came into play in the 1960s and is popular in many countries in the world.

As times progressed the plans were also successfully mapped along with life insurance
need to retirement planning. In today's times, ULIP provides solutions for insurance
planning, financial needs, and many types of financial planning including children’s
marriage planning.

In India investments in ULIP are covered under Section 80C of IT Act. However, the
concept of having an investment and insurance by the same instrument was challenged by
the market regulator SEBI which took up the matter to the Supreme Court of India .The
Indian government brought down curtains on the two-month long tussle between the
regulators by ruling that Unit-linked Insurance Products (Ulips) will be governed by the
Insurance Regulatory and Development Authority (IRDA).[1]

Irda wins Ulip battle

BS Reporter / Mumbai June 20, 2010, 0:07 IST

Govt settles issue by issuing ordinance.

The government has brought down curtains on the two-month long tussle between two
regulators by ruling that Unit-linked Insurance Products (Ulips) will be governed by the
Insurance Regulatory and Development Authority (Irda).

Ulips account for more than 50 per cent of the life insurance business in the country. The
money collected is invested in equities.

An amendment favouring Irda over the Securities and Exchange Board of India was signed by
President Pratibha Patil on June 18.

On Friday, the law ministry issued an ordinance amending the RBI Act 1934, Insurance Act
1938, Sebi Act 1992 and Securities Contract Regulations Act 1956, clarifying that life
insurance business will include any unit-linked insurance policy or scripts or any such
instruments. This has thus settled the issue of regulating Ulips.

The ordinance is also likely to nullify a case filed in the Bombay High Court by an investor
seeking to get clarity on the jurisdiction of Ulips. A public interest litigation filed in the Allahabad
High Court on mis-selling of Ulips is scheduled to be heard on July 8.
 The insurance regulator, headed by J Hari Narayan, now plans to come up with new guidelines
on this investment- cum-insurance product on June 21, an Irda official said. Irda will now
approve all new Ulips.

"We have to be more careful in clearing products now and will introduce a few more features,"
said the Irda official who declined to be identified as he is not authorised to speak to the media.

The two regulators have been warring over the jurisdiction over Ulips after Sebi on April 9
barred 14 life insurance companies from selling or renewing Ulips unless they registered with
it.

A day later, Irda struck back telling insurers to ignore the Sebi order on the grounds that the
capital markets regulator had no jurisdiction over insurance companies.

This resulted in the government intervention and the finance minister asked both the regulators
to file a joint application with an appropriate court to resolve the matter.

However, Sebi issued a clarification saying that insurance companies, launching products after
April 9, need to register with it.

It was agreed that insurance companies will not launch new Ulips till the court resolved the
issue. Subsequently, insurance companies decided to take on Sebi by planning the launch of
new Ulips. Though the insurance regulator planned to approve new products, it did not do so
over the last two months.

On filing the joint application, Sebi later disagreed over approaching courts for a judgement on
the regulatory jurisdiction over Ulips. The Finance ministry then directed law ministry to work
over the matter.

Irda goes strict on universal life policies

BS Reporters / Mumbai/hyderabad November 24, 2010, 0:22 IST

After unit-linked insurance plans, the Insurance Regulatory and Development

Authority (Irda) has introduced stringent guidelines for universal life policies
(ULPs).

“We looked into the areas of mis-selling and how to improve transparency,” said R Kannan,
member (actuary), Irda.

The guidelines, issued late Tuesday, will classify all ULPs as variable insurance products (VIPs).
Consequently, all VIPs will only be offered under non unit-linked platform, implying that they will
now come under traditional plans.
The guidelines stipulated that VIPs should provide only mortality cover and no other contingency.
The policy should be for a minimum of five years. The sum assured should be at least ten times
that of the annualised premium.

On death, a benefit equal to the guaranteed sum assured plus the balance in the policy account
will be provided. On maturity, a benefit equal to the balance in the policy account together with a
terminal bonus, if any, will be paid to the policyholder.

According to the new guidelines, the minimum policy and premium payment term shall be five
years and all VIPs shall have a lock-in period of three years. Every policy shall have a
corresponding policy account whose balance shall depict the accrual to the policyholder.

The lock-in period of ULPs (now VIPs) will be three years. Though one can surrender in the first,
second and third years, the surrender value will only be paid after the third year. In this situation,
the balance in the account will be frozen. Also, no interest will be paid on the balance neither will
any expense be charged.

In the fourth and fifth years, the policyholder will be eligible for 98 per cent of the policy balance
and the amount will be paid immediately.

VIPs, henceforth, can only be regular premium products. Single or limited premium will not be
allowed. Even group insurance contracts will be allowed, at present.

The insurance regulator has also capped maximum expenses, including commission. In the first
year, the charges have been capped at 27.5 per cent of the first premium, 7.5 per cent in the
second and third years, and 5 per cent from fourth year onwards. In case of top-up premiums,
expenses have been capped at 3 per cent.

Said a product head of an insurance company, “We have to work out the profitability of these
products after the new norms. Normally, insurers charge 20-25 per cent commission in the first
year. There is an expense over and above this.”

Insurers have to provide a policy account statement to holders every year giving details of
opening and closing balance. This statement will also give a complete break-up of premium
received, deduction towards mortality, commission and expenses, floor interest earned and
bonus, among others.

“Earlier, policyholders were only made aware of the sum assured. They did not know about the
commission or expenses. Now, they will be made aware of this through the declaration form,”
added Kannan.

This apart, the policyholder should be offered the flexibility of changing the sum assured during
the currency of the contract subject to a minimum sum assured as approved in the file and use
(F&U) clearance accorded by the authority.

There should not be any rider attached to the product. No partial withdrawal would be allowed.
However, a loan amount of not more than 60 per cent of the balance could be extended. The
product should have guaranteed a minimum floor rate for the whole term that should be declared
at the start of the policy.

On October 22, Irda had suspended the sales of ULPs till new guidelines were to be issued.
Life insurers seek slower regulatory changes
Press Trust Of India / December 06, 2010, 0:08 IST

Concerned about the fast pace of regulatory changes being brought into the sector, the life
insurance industry has approached sector regulator, Insurance Regulatory and Development
Authority (Irda), to go slow in its approach, sources said. In turn, Irda has assured industry
players that it will go slow in bringing regulatory changes from next year, a move that will bring
some respite to the players, the sources added.

Ever since the controversy over the regulation of Ulips was sorted by the government through an
Ordinance in July, later made into an Act this year, Irda has brought about a lot of changes in the
life insurance sector. The regulator has also made unit linked products that give customers life
cover, along with returns from investment in the capital markets, a long-term product so that it
could be distinct from any other investment product.