Unit linked insurance plans (ULIPs) have been under a lot of flak in the past years. Even though the industry prides over these insurance polices as the most transparent and flexible products in its basket, it is laced with front loading of charges, incomprehensible policy brochure and notorious agents salivating for fat commissions.

The regulator seems to have finally taken cognisance of such rampant miselling, after a sabbatical of more than a year when it announced its guidelines on ULIPs, and has identified a few products which are too complicated for the investor to understand and has serious issues of transparency.

Bajaj Allianz’s one Capital Unit Gain and Aviva’s fourteen ULIPs have been given a time frame of 15 days to about a month to simplify the wordings and reflect the charges deducted upfront. Known as ‘actuarial funded products’ these policies work like an endowment assurance plan where the death benefit is mentioned in capital units.

“Other policies tell you the charge upfront and you know what your sum assured is but in these products the sum assured or the maturity benefit comes by way of capital units guarantee. So what you get is the units multiplied by the fund value. Even as the units might be guaranteed, the net asset value (NAV) varies which is why the death benefit is not clear in absolute terms and even charges, although mentioned, are difficult to understand,” said an Insurance Regulatory and Development Authority (IRDA) official in the actuarial department.

Even as each of these policies has been cleared by IRDA, they are held back since the charge structure is not clear and the costs are not front loaded. “Due to the even spread of charges, one gets the impression it has high returns. The policy by itself has no problem. Only the terms need to be clearer so we have asked the companies to relaunch their policies,” said CS Rao, chairman, IRDA.

... contd.