IRDA has, vide circular dated November 23, 2010, issued guidelines on Universal life insurance policies/products. The salient features of the guidelines are as follows:
I. All universal life products are required to be termed as Variable Insurance Products (“VIPs”). VIP has been defined as a non- linked life insurance product which provides (i) a death benefit equal to the guaranteed sum assured plus the balance in the policy document and (ii) a maturity benefit equal to the balance in the policy account together with a terminal bonus as applicable.
II. VIPs are required to be offered only under non-unit linked platform.
III. Every policy is required to have a corresponding policy account whose balance shall depict the accrual to the policyholder. The policy amount will be credited with premium net of all charges.
IV. VIP is required to provide only mortality cover. Under a VIP, the sum assured should be at least ten times of the annual premium.
V. VIP is required to provide to the policyholder the flexibility of changing the sum assured during the currency of the contract subject to minimum sum assured.
VI. VIPs are not permitted to be issued as a group contract.
VII. VIPs are required to provide only for level regular premiums. Single premium or limited premium structures would not be allowed.
VIII. The minimum policy and premium payment term of a VIP is required to be five years with a lock- in period of atleast three years.
IX. All the VIPs are required to prescribe a surrender value which shall not be more than as prescribed in the Circular.
X. Top –up premium is allowed through out the term of the policy, however at any point in time, the total top-up premium should not exceed the total sum of the regular premiums paid at that particular point of time.
XI. Partial withdrawal is allowed under VIP.
XII. VIP is required to be offered as traditional products either as participating or non- participating, as per the current practice.
XIII. The insurer is required to keep a separate account of all receipts and payments in respect of VIPs.
XIV. The maximum expenses (including commission) that can be charged to the premium paid by the policyholder in the first year has been capped at 27.5% of the first-year premium. For the second and third-year, the cap has been fixed at 7.5% of the second and third year premium and a cap of 5% has been prescribed on the premium for fourth year and thereafter. In case of top-up premiums a 3% cap has been prescribed.
XV. In case the premiums are not paid within the grace period, the policy will become a paid – up policy.
XVI. The promotional material and the key features document is required to mandatorily disclose the following:
a) Guaranteed minimum floor rate.
b) Sum assured.
c) Premium paying term.
d) Break-up of premium showing all the components separately.
e) Lock-in period and treatment of monies during lock in period in the event of surrender.
f) Interest rate on loan, if applicable.
g) A declaration that this is a non linked insurance product.
XVII. All existing individual products which have separate and indentified savings component are required to be refilled with the IRDA in accordance with these guidelines.
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