'IRDA steps won't make ULIPs more attractive'

Will the new Insurance Regulatory and Development Authority (IRDA) guidelines on unit-linked insurance plans (ULIPs) make them more investment- friendly? Investment experts don't think so. Sure, they aver that these steps are mostly in the right direction, but they insist that these are, at best, "cosmetic changes" that would help the insurance regulator's case on Ulips in the court.

However, the much-debated issues such as "cost cutting" and "transparency" continue to dog these insurance products, which have emerged as the most-preferred insurance plans of Indian customers in the last few years. "They are tweaking the product, but the real issues such as expenses and transparency are not addressed," says Gaurav Mashruwala, a certified financial planner. "At best, these changes strengthen IRDA's case in court as all Ulips would now have an insurance element in them," he adds.

Financial experts often take potshots at ULIPs as they believe that these products, essentially an investment product with a mostly cosmetic insurance component, have been grossly mis-sold to the gullible public without disclosing the real cost or risks involved in them. The issue gained currency since the market regulator Securities and Exchange Board of India (Sebi) sent notices to insurance companies asking them to register Ulips with them as they are essentially investment products, which the IRDA has been vehemently denying.

Many financial experts believe that the recent efforts by IRDA to make ULIPs more investor friendly is just an effort to score over Sebi in its turf war. "Most of these measures, including the recent one on disclosing commission, were taken only to make sure that IRDA is on a strong wicket. However, the frontloading of commission, rampant mis-selling on claims of past performance or not having to pay premium after three years are yet to be addressed," says an expert who doesn't want to be named. Upfront commissions on ULIPs — in some cases it could be as high as 80-90% — have been a bone of contention ever since these products were issued.

However, they gained currency lately after Sebi abolished entry load on mutual fund investment since August last year. "In terms of cutting down on costs, nothing has been done yet. Sure, the IRDA has come up with a concept of gross yield and net yield to curtail cost, but most people don't understand the concept," says Amar Pandit, certified financial planner, My Financial Planner.

Suresh Sadagopan, chief financial planner, Ladder 7 Financial Advisors, says the only difference the new changes would make is that the insurance companies would offer only "type II ULIPs" from now. Insurance companies offer two kinds of ULIPs. The first kind of policy would offer the sum assured or fund value, whichever is higher. The second one would offer both the sum assured and the fund value.

Source: http://timesofindia.indiatimes.com/biz/india-business/IRDA-steps-wont-make-ULIPs-more-attractive/articleshow/5891130.cms