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As reflected in the business figures and the above chart it is the unit linked business which is driving the growth of premiums over the last 2-3 years. While the private players have taken the lead in this segment, LIC has also made strong strides in the sale of ULIPs during the last three years. Despite the growing popularity of ULIPs it remains a fact that the policy holders rely heavily on the advice rendered by the distributors. The complicated design of the policies makes them less aware of the product features and chances of mis-selling by agents are high. To protect the interest of the customers, IRDA has taken the following initiatives.

  • Issuance of comprehensive ULIP guidelines in 2005 which mandate minimum risk cover, three year lock-in, usage of simple language, proper disclosures, standard method of computing NAV etc

  • Insurers to make projections of return as per the guidelines of Life Insurance Council.

  • To ensure transparency, IRDA has directed the insurers to list all charges that the policyholder has to bear along with the amount available for investment in each year specific to each policy.

  • IRDA has also stipulated that policyholders would have to sign a document stating that they have understood the terms and conditions of the policy before concluding the sale.

  • The customer can also use 15 days free look period in case he is not satisfied with the terms and conditions of the policy.

  • To remove complexity in unit linked products IRDA has advised the insurers to phase out some of the actuarially funded ULIPs.

World wide, Unit linked products have been seen as attractive- in view of the flexibility and investment options they offer to the customers and the capital efficiency to the companies. After the market crash of 2001, customers started looking for more security and guarantees in the unit linked products. Adding guarantees to unit linked products has been common in Europe, North America and Japan. The unit linked market though new in Asia is growing steadily in countries like Korea, Taiwan and South East Asia. Variable Annuity products are slowly emerging in these markets and from the customer point of view are quite attractive, especially when they provide guarantees on pension savings.

In India, the long-standing debate over the suitability of Unit Linked Insurance Plan (ULIP) and mutual funds can be resolved better with a proper understanding of the need of the investor. Mutual funds are essentially short to medium term products. ULIPs, in contrast, are positioned as long-term products with an element of life cover. It is pertinent to note that exposure of Indian households to capital markets is limited. It is important for an investor to understand his financial goals and horizon of investment in order to make an informed investment decision.


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