Insurance regulator Insurance Regulatory and Development Authority, or Irda, said on Thursday insurers cannot charge fees on surrender of a unit linked insurance policy (Ulip) after five years, a move that analysts said will put more money in the hands of the investor.
Insurance companies sometimes charge a nominal fee to customers to withdraw their unit-linked policies once the lock-in period ends. Policies withdrawn during the lock-in compulsorily attract a high surrender charge.
Unit linked insurance policies are sold as units like mutual funds and the corpus is mainly invested in equity and debt markets.
This will stop insurers from levying any charges on surrender of a policy from the fifth year and put in more money in the hands of investors, Karan Uberoi, analyst at J M Financial, said.
Earlier, Irda had capped Ulip charges at 300 basis points (bps) for insurance contracts up to 10 years and 225 bps for contracts over 10 years to keep a tab on costs insurers charge from investors.
It also tweaked this order on Thursday and excluded mortality and morbidity charges from the cap and fixed fund management charges at 135 bps for all insurance contracts, in its latest circular.
Currently, Ulip charges on an average work out to around 375 bps.
IRDA bars surrender charges on Ulip plans from 5th year
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