A Unit Linked Insurance Plan (ULIP) can be purchased all throughout the year. Whether you purchase a ULIP plan early or late, you would receive the guaranteed benefits from your insurer. However, buying ULIP insurance from December 1 has relatively high benefits. Since the Insurance Regulatory and Development Authority (IRDA) has introduced new rules, which can come into effect from December 1, your insurers might push you to opt for a ULIP policy during this period.
The IRDA rules can allow you to withdraw non-compliant products before December 1. Moreover, it can let you decide whether you wish to obtain the guarantee or not. However, if you want to stay invested for a long time, you should invest in equities to generate a large corpus for your future.
Before learning the impact of the new IRDA rules on a ULIP policy, let’s begin by understanding what a ULIP policy is in detail:
A ULIP policy is a unique financial product, which can be an amalgamation of investment and insurance. Due to its dual benefits, you can ensure your participation in the capital market as well as look after the financial protection of your family. While the investment component can let you select between equity funds and debt funds, the insurance element can offer life coverage in your absence to your family.
A ULIP policy has been in the market for a long time. However, it came into limelight after the new rules were introduced by the IRDA, which came into effect from December 1. These rules can turn a ULIP policy into a customer-friendly product. Therefore, let’s go through the prominent changes made by IRDA, which has reflected positively so far:
- Life cover
When you purchase a ULIP policy, you should select life coverage based on your family’s financial requirements. After your demise, the selected coverage amount can act as a financial savior for your loved ones. Before the new regulation, the minimum sum assured value was 10 times of the annual premium.
From December 1, the insurance companies might have reduced the sum assured value to 7 times of the annual premium. The minimum sum assured value can be applicable to you if you are under 45 years. The lower coverage amount can help you to gain better returns since your money would no longer be deducted towards the mortality charges. The mortality charge is the amount deducted by your insurance company for the provision of life coverage.
- Policy lapse
Under a ULIP policy, you should regularly pay the premium amount in return for coverage. When you fail the premium amount due to loss of income or physical disability, your insurer would provide you with a period of 30 days. If you are unable to repay the premium amount within 30 days, your ULIP policy would eventually lapse.
After the introduction of new IRDA rules, you can reduce your existing premium amount after the completion of the lock-in period. The ULIP plan has a lock-in period of five years, wherein you should pay the premium regularly throughout the tenure of the policy. As a policyholder, you can revive your ULIP policy within five years after the policy has lapsed.
- Surrender value
The lock-in period of five years would not allow you to withdraw your funds before the completion of the tenure. However, many insurers can let you to partially liquidate your funds before the lock-in period. When you surrender your ULIP policy, your insurer can provide you with an amount called surrender value on your pre-mature exit.
Initially, you might have received 30% of your premiums that you paid towards the ULIP policy. However, the surrender value can increase to 30% after December 1.
As highlighted above, the new rules can reflect a positive change in a ULIP policy. However, don’t select a ULIP policy to reap the benefits after December 1 solely. If you aim to handle the financial needs of your loved ones, buy a ULIP insurance for their security in the future. Before selecting the ULIP policy, use a ULIP calculator to calculate not only the premium but also compare different ULIP policies available for you.
