Most of us are aware of the benefits and drawbacks of Unit-linked insurance plans (Ulips). However, an important point that we miss when comparing them to other forms of investment is that they provide an element of protection. Apart from protecting life where in case of unforeseen circumstances of death, the nominee would receive the tax-free sum assured (under Section 10(10D) of Income Tax Act, 1961), investing in Ulips also helps to enhance wealth by offering the flexibility to change the chosen investment funds based on market conditions.

How Ulips Have Evolved After 2010

From being regarded as one of the most mis-sold products to becoming as transparent as other financial products in the market, Ulips have evolved after the reforms brought in by the Insurance Regulatory and Development Authority of India (IRDAI) in 2010. Today’s Ulips have become transparent, investor-friendly, and are cost-and-tax-efficient. The new guidelines such as increased disclosures, minimum lock-in period increased to five years, and commissions capping all the new-age ULIPs have made it a better financial product with long-term savings and enhanced protection.

Ulips promote superior customer-seller engagement by offering benefits like low or even zero charges, capping of fund management charges, availability of return of mortality charges, and additional loyalty benefit. Its wealth boosters increase fund value and its transparent illustrations bridge the trust gap with the customer. Ulips are now low-cost vehicles for those who want to invest in market-linked products and also want a life insurance cover. The product is suitable for a conservative customer base as it allows for investments with safer returns.

The new generation of Ulips ensures minimal policy allocation or administration charges. IRDAI’s policy amendments include capping annualized ULIP charges along with fund management charges at 1.35 per cent a year, as well as having fixed limits on premium allocation charges, mortality charges, and the commission insurance agents earned on ULIPs, have brought parity to the product. These amendments have made ULIPs more advantageous than mutual funds and equity-linked savings scheme (ELSS), in most of the cases.

While Ulips of the past had earned a bad reputation due to excessive charges, new norms mandated by IRDAI have helped bring greater transparency and trust into the product.

Aalok Bhan is the Director and Chief Marketing Officer, Max Life Insurance.

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