Pure life cover to carry fee, Ulips to be freed from 2011
Consumers buying pure-life insurance products will have to continue paying commission to sellers of these policies, but those investing in Unit Linked Insurance Plans (ULIPs) are set to be spared of this burden after April 2011.
The move will help improve returns to investors in ULIPs, curb mis-selling and help raise insurance penetration by having a modest commission on pure insurance products, creating incentives for sellers. The proposal, featuring in the final draft of a panel set up by the High Level Committee on Financial Matters (HLCCFM), an apex forum for financial sector regulators, will also pave the way for a load-free regime on most financial products after April 1, 2011.
Loads are charges which investors have to bear while buying or selling financial products. Since these are generally embedded in the price, they tend to depress returns. The recommendation to knock-off commissions from the policy-holders’ premium goes against the insurance regulator IRDA’s demand to keep the existing structure intact. Going by the insurance rules, agents are entitled to get a commission of upto 40% of the premium in the first year, 7.5% in the second year and 5% in the third year and thereafter.
IRDA’s dissent is also fall-out of a vehement attack on ULIPs by mutual funds which compete with insurers. The allegation on mis-selling of ULIPs has not been not borne out by analytical research, IRDA chairman J Hari Narayan had earlier told ET.
Source - economictimes.com
