ULIPs get more transparent with IRDA move

WEALTH received many queries from readers enquiring about Unit Linked Insurance Plans (ULIPs). The common thing among these readers was that they were tricked into buying ULIPs. They were told they could earn returns that are much better than any other investment, and the premium could be paid only for three years if they wanted to. This is most common pitch for selling ULIPs. And they are classic examples of mis-selling.
If you have been a victim too, here is some relief for you. In a move to curb such malpractices of agents, Insurance Regulatory and Development Authority (IRDA) has taken some initiative. In a circular released, the regulatory body has said that the premium paid in the second year should at least be 75 per cent of the premium paid in the first year. In other words, let’s say if you have paid a premium of Rs 10,000 in the first year, the premium paid in the second year should at least be Rs 7,500 in the following year.
Why this move?
It all began in the year 2007 when IRDA had issued a norm that allowed insurers to reduce the premium in ULIPs, provided a certain amount is maintained throughout the policy term. But this norm seemed to be misused by insurance agents to sell ULIPs like single premium plans. This norm when introduced was done with the intention of bringing in more flexibility. But insurance agents misused this clause and hence IRDA has now asked them to conform to the new norm beginning April 1, 2009.