Unit-Linked Insurance Plans (ULIPs) have earned popularity over the last few years due to the substantial ULIP plan returns and many other benefits. The Insurance Regulatory and Development Authority of India (IRDAI) made some alterations in the functioning of ULIPs to make the plan more transparent and beneficial for policyholders. These came into effect from February 1, 2020. Here, you will know how these changes will prove helpful for you.
What is ULIP?
ULIP is essentially a life insurance policy that also offers an option to invest and grow your money. A life cover is a vital part of your financial planning, as it protects your dependents’ future in your absence. The insurance provider uses a portion of your premium to invest in equity, debt, or a mixture of funds to help you build a fortune. Now that you know what ULIP policy is, read on to learn about the regulatory changes and their effects.
Extended revival period
At present, insurance companies allow you to revive your ULIP if the policy lapses due to premium non-payment. Previously, policyholders could revive ULIPs within two years since the first missed premium. As per the IRDAI’s instructions, insurers now permit three years for reviving ULIPs.
In most cases, missed premiums are a result of financial difficulties. Policyholders often fail to continue their ULIPs due to a lack of funds, and two years might not be enough to solve the problem. This is why the extension of the revival duration is a blessing for all ULIP holders. Three years of revival time will help more people to continue their ULIPs once they resolve their monetary issues.
Changes in the sum assured rule
Earlier, policyholders aged under 45 could avail of a minimum sum assured of 10 times the annual premium. Only people aged more than 45 could purchase ULIPs with a minimum sum assured lower than 10 times the yearly premium. As per the new IRDAI guidelines, people of all ages will follow the same conditions when buying a ULIP. Now, the minimum sum assured has to be seven times your yearly premium. You can use a ULIP calculator to determine the premium before buying a policy.
You may think that a lower minimum sum assured is discouraging news, but it also means deducted mortality charges. You can now reduce the annual premium by up to 50% once the five-year lock-in period ends. This will effectively improve the ULIP plans returns for policyholders. This facility is useful for people who are financially struggling to pay the premium.
Revisions in surrender value norms
Before the new mandates, insurers paid a surrender value to the policyholders only if they discontinued the plan after three years. As per the new rules, you can now surrender the policy after two years, and the insurer will pay you 30% of the premium paid so far.
If you discontinue the policy during the last two years of the tenure, the insurer will pay you a surrender value of 90% of the total premium paid. The surrender value will be 35% after three years and 50% between four to seven years. However, these amounts will be less if the insurer has already paid you any survival benefits.
Modifications in partial withdrawal limits
The new IRDAI regulations now permit the policyholders to withdraw 25% of their ULIP fund thrice during their policy duration. However, the withdrawal is possible only if you need money to treat critical illnesses, pay for children’s weddings or higher education, and constructor purchase residential properties. Also, you can avail of this offering only if your ULIP has completed the lock-in tenure of five years.
Now that you know about the new ULIP regulations and how they can be advantageous for you, it is time to purchase a policy that meets your needs. Using a ULIP calculator will help you compare different plans and find the right one.