Putting its 2007 preaching into 2008 practice, Insurance Regulatory and Development Authority (IRDA) has made the sale of unit linked insurance products (ULIPs) more transparent by asking insurers to attach an illustration explaining the costs. This illustration will now have to be signed by the agent selling the policy and customers buying it. In a circular released today, IRDA has stipulated that beginning February 1, 2008, insurers will have to spell out all the charges clearly indicating how much of the premium is invested year-on-year for the entire tenure of the policy.

“The purpose of this circular is to provide the prospect/ policyholder all relevant information regarding amounts deducted towards various charges for each policy year so that the prospect/ policyholder can take an informed decision,” the circular titled Benefit Illustrations for Unit Linked Products stated. The illustrations prepared by insurers/ agents will also include the corpus generated at the end of the policy tenure, assuming returns of 6 per cent and 10 per cent. These rates have been fixed by the Life Insurance Council (LIC), a statutory body representing life insurers, to give indicative returns.

According to the circular, the illustration so prepared will have to be “specific” to the needs of the policyholder and the agent will have to include these illustrations in the policy document and get it signed by the policyholder at the time of sale of the policy. “It is important for a policy holder to know what he is being sold,” said IRDA chairman C S Rao. “How his premium is being distributed is very important for him to make an informed decision.”

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