Discontinued ULIPs renewal okay by IRDA: Both insurer and insured stand to gain

IRDA’s directive is a good option for the insured, but why was it omitted in the new ULIP guidelines in the first place? Will IRDA bring back ‘cover continuance’ too? The industry gains—ULIP revival benefits a life insurance company due to capped surrender charges coupled with the fund management charge of 0.5% on a discontinued fund

The Insurance Regulatory and Development Authority (IRDA) has mandated insurers to allow policyholders to revive ULIPs (unit-linked insurance plans) within two years of the last premium paid, but not after the lock-in period of 5 years has expired. It is a good move for both the insurance company and the insured, but the same was offered in ULIPs sold prior to the regulatory changes of 1 September 2010. But the new regulations do have something in store for both the insurer and the insured.

Insurance companies will benefit; IRDA has allowed them to charge 0.5% fund-management charge on the discontinued fund. This in effect negates the benefit offered to the customer (the increase from 3.5% to 4% return) on the discontinued fund.

The request to allow revival of ULIPs post 1 September 2010—up to two years of discontinuation—was made by insurance companies. They had little to gain with discontinued policies, as the surrender charges were capped to a small sum under the new IRDA regulations. Insurance companies are finding it hard to sell new ULIPs, due to drastic reduction in the first-year commission for agents. The only way to make up for lost commission for agents is to improve persistency ratio by chasing customers for renewal premiums.

Under the old ULIP regime, surrender charges were unreasonable and hence insurance companies (in many cases) did not bother if a customer renewed a policy or not. The revival period of two years in old ULIPs is mentioned in the fine print in a few product brochures. If you did not know about this clause, there may still be time to revive your policy.

Girish Malik, vice-president-life insurance, Nandi Insurance Broking told Moneylife, “Under the new ULIP regulations, surrender charges are capped and hence the extended period of two years for revival (in old ULIPs) may have been dropped in the new IRDA regulations. The changes will allow customers of ULIPs sold after 1 September 2010 to revive the policy if they have missed out on the opportunity to renew the policy for some reason.”

Insurers will have to refund the discontinuance charges on revival of the policy. The insurer may attach conditions or raise the premium. It may involve medical tests in some cases—considering the age factor, size of cover and the gap in premium payment. In short, the revival will happen on the terms laid down by the insurance company.

‘Cover continuance’ was another feature in old ULIPs, which got dropped in new ULIPs. Can IRDA allow this feature for new ULIP too? Under this clause, if one is not able to pay premiums anytime after the first three years (the lock-in period), the policy would not lapse and the life cover continues. The funds invested in equity/debt will continue to remain invested in the policy. The life cover sustains because of the mortality charges that continue to be deducted from your fund value along with other charges as per the policy contract. It ensures that the sum assured is payable in the event of the policyholder’s demise, even if all the premiums have not been paid.

According to Arvind Laddha, chief executive officer, Vantage Insurance Brokers and Risk Advisors, “Both the insured and insurer will benefit from the IRDA changes to the ULIP guidelines. The revival of ULIPs up to a period of two years will help to restart any discontinued policies. The insurer benefits with increase in persistency ratio and 0.5% fund management charge on the discontinued fund.”



Madhusudan Thakkar

6 years ago

It is heartening to know that better sense prevailed and IRDA has extended revival period for discontinued ULIPs [which has 5 year lock-in period] from month to 2 years or until the lock-in period whichever comes first.Similar directive is also needed for post lock-in period i.e after 5 years also.There is no need for refund of fund value after 5 years if premium is not paid within 45 days of due date.Cover continuance should also be granted after 5 years if there is enough amount to take care of mortality and other charges. This move by IRDA is like "HALF SHAVE" for customers


Raj Pradhan

In Reply to Madhusudan Thakkar 6 years ago


Madhusudan Thakkar

In Reply to Raj Pradhan 6 years ago

One year has elapsed since launch of new ULIPs and IRDA has woken up now.I am sure after end of lock-in period in new ULIPs IRDA will come with another circular directing Insurers to offer "COVER CONTINUANCE" to customers.But then it will be too late.IRDA should incorporate this NOW.

Essar Shipping receives SEBI nod for listing of shares

As per the scheme of arrangement approved by the Gujarat High Court, the shareholding of Essar Shipping Ports & Logistics had been split in the ratio of 2:1. For every three shares of ESPLL held, shareholders received two shares of Essar Ports, and one share of Essar Shipping

New Delhi: Essar Shipping (ESL) on Thursday said it has got approval from the Securities and Exchange Board of India (SEBI) for listing the company shares on bourses. The listing is pursuant to demerger of the erstwhile Essar Shipping Ports & Logistics, reports PTI.

“ compliance with the Gujarat High Court approved demerger scheme, Essar Shipping Ports & Logistics had been renamed as Essar Ports and has been trading since 31 May 2011 on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). The resultant company, Essar Shipping, had been awaiting the formal approval from SEBI for commencement of trading, which has now been accorded,” the company said in a statement.

As per the scheme of arrangement approved by the Gujarat High Court, the shareholding of Essar Shipping Ports & Logistics had been split in the ratio of 2:1. For every three shares of ESPLL held, shareholders received two shares of Essar Ports, and one share of Essar Shipping.

Essar Shipping has a diversified fleet of 26 vessels, including VLCCs, Capesizes, Supramaxes, mini bulk carriers and tugs.

The company has placed orders for 12 new ships, which are expected to join the fleet over the next 24 months.

“A sizeable part of the capacity is deployed on long-term contracts, insulating the company from the volatility of spot markets,” the company said.

It added that the oilfields services business provides contract drilling services to oil & gas companies across the globe. This business owns one semi-submersible rig and 12 land rigs. The company has ordered two new jack-up rigs, which will be joining the fleet over the next 18 months, it added.

The logistics business, the company said, manages a fleet of over 5,000 trucks for inland transportation of steel and petroleum products.

The Essar Group is a multinational conglomerate and a leading player in the sectors of steel, oil & gas, power, BPO & telecom services, shipping and ports.


USE full-year loss widens to Rs 19 crore

The USE, which commenced operations in September 2010, ended the 2010-11 fiscal with a net loss of Rs18.76 crore. The accumulated losses have led to the USE’s net worth coming very close to the minimum requirement of Rs100 crore for a stock exchange

New Delhi: The United Stock Exchange (USE) saw its full-year losses widen to about Rs19 crore in the fiscal ended March 2011, with interest income from fixed deposits accounting for over 96% of its revenue, reports PTI.

The country’s newest stock exchange has posted revenue of Rs8.29 crore for the 2010-11 fiscal, which included about Rs7.98 crore (96.2%) as income from interest on surplus funds kept in bank fixed deposits.

The exchange, which commenced operations in September 2010, is yet to levy any transaction charges, said that it ended the 2010-11 fiscal with a net loss of Rs18.76 crore.

Together with a brought-forward loss of about Rs14.5 crore from the previous year, the aggregate loss carried to the balance sheet as on 31 March 2011, was Rs33.27 crore.

These accumulated losses have led to the USE’s net worth coming very close to the minimum requirement of Rs100 crore for a stock exchange.

As of 31 March 2011, the USE’s net worth stood at about Rs124 crore.

Rival MCX-SX, which is present only in the currency derivatives market like the USE, had a net worth of about Rs256 crore as of 31 March 2011.

The net worth of the two established exchanges, the BSE and the NSE, stood much higher at Rs2,029.14 crore and Rs2,988.40 crore, respectively, as of 31 March 2011.

As per its financials for the fiscal 2010-11, the USE’s total revenue rose from Rs1.83 crore to Rs8.29 crore, which was mainly due to interest income, as the exchange does not levy any transaction charge on trading on its platform.

The exchange said it is not levying transaction charges as part of efforts to attract and retain business volumes in its nascent stage.

TS Narayanasami, who recently quit as USE managing director, is said to have had differences with some promoters and other top executives on issues like transaction charges.

Mr Narayanasami had said in August that the USE would hold a board meeting by the month-end to decide on transaction charges, but the exchange is yet to charge anything for this market segment. Two of its rivals, the NSE and MCX-SX, have already begun levying a fee.

There have also been reports about a conflict of interest and a possible breach of fair trade practices due to one of its largest shareholders, Jaypee Capital, being a major trader also on the exchange.

The reports have said that about 80% of currency derivatives volumes on the USE come from Jaypee Capital alone.


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