Come September, the new ULIP norms will kick in, and the rush to sell these products is becoming intense

From incessant phone calls to text messages, insurance agents are once again trying every trick in the book to make people buy Unit-linked Insurance Plans (ULIPs) before 1st September, when the new guidelines come into force. This time, agents are pushing ULIPs with a lot more vigour. They are trying to convince customers that it is the right time to buy these products.

An agent called up yours truly and said, “Sir, you should buy our pension ULIP plan now, before 1st September, especially before the (new) IRDA regulations.” Another informed Moneylife that the old lock-in periods are better than the ones applicable from 1st September. The agent’s statement is a complete contradiction in terms, as many insurers consider ULIPs to be a long-term insurance-cum-investment product. An agent has also issued an ad in a local Pune daily, claiming that now is the ‘right time’ to buy ULIPs.

As per the new Insurance Regulatory and Development Authority (IRDA) guidelines, insurers will now have to increase the lock-in period for ULIPs from three to five years which means that during this period there would be no residuary payments on lapsed, surrendered or discontinued policies — and agent commission will be spread out. A top-up on insurance premiums will now be treated as a single premium, meaning that every top-up that one makes will have to have an additional insurance cover backing it up as well. However, despite the new guidelines, insurance agents are back to their old tricks, and are trying to push sales before the new norms kick in.

This is because agents’ commissions are going to drop after 1st September. As per the new norms, IRDA has insisted that the fat commissions, which insurance companies were paying, would have to be spread over five years. Insurance companies were doling out upfront commission as high as 30%-40% to distributors in the first year. They will now have to spread this commission over the five-year lock-in period, which has put off many distributors. So until 1st September, they will be allowed to go about their daily business (as usual) with the prevailing norms.

“The push is mainly for pensions, as product and commission structures will be changing, so agents are pushing (these products),” said an official from a private life insurance company, preferring anonymity. Probably the thorniest issue for insurers is the fresh stipulation that all pension products should guarantee a return of 4.5% to protect the lifetime savings of an insured person from adverse fluctuations at the time of maturity.

ULIPs are hybrid products that combine elements of investment and insurance, and have been a big investment magnet for insurance companies. According to the Life Insurance Council of India, an industry body representing 23 life insurers, of the Rs2,00,000 crore-plus life insurance premium collected in the first 11 months of the past fiscal, more than Rs91,000 crore were generated from ULIPs.