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 on 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 offering an option to invest and grow your money. A life cover is vital to 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 about the regulatory changes and their effects.
Extended revival period
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. Per the IRDAI’s instructions, insurers now permit three years to restore 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. Extending the revival duration is a blessing for all ULIP holders. Three years of revival will help more people continue their ULIPs once they resolve their monetary issues.
Changes in the sum assured rule
Earlier, policyholders under 45 could avail of a minimum sum of ten times the annual premium. Only people over 45 could purchase ULIPs with a minimum sum guaranteed lower than ten times the yearly premium. As per the new IRDAI guidelines, people of all ages will follow the same conditions when buying a ULIP. The minimum sum assured has to be seven times your yearly premium. A ULIP calculator can determine the premium before buying a policy.
You may think a lower minimum sum assured is discouraging news, but it also means deducted mortality charges. You can 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 those 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. 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, withdrawal is possible only if you need money to treat critical illnesses, pay for children’s weddings or higher education, and construct or 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 benefit you, it is time to purchase a policy that meets your needs. A ULIP calculator will help you compare plans and find the right one.
