Reliance Super InvestAssure Plan will assure that 80% of your first year premium is pocketed by Reliance, and Max New York Life Secure Dreams plan will unsecure your dreams by securing 30% of your first year premium

After Unit-linked Insurance Plans (ULIPs), ULPs (Universal Life Policies) are going to be reformed inside out by the insurance regulator. ULPs are a combination of ULIPs and 'traditional' insurance products.

Like ULIPs, the premium amount in ULPs is invested in bonds and equities after deduction of various charges. Like traditional products, there is no unitisation of funds, which means the fund value is not declared as in traditional plans. Also, one wouldn't know where the money has been invested and what return it has obtained. If ULIPs, which were more transparent, came under IRDA's reformist moves, there is no reason why ULPs won't - since ULPs are far worse than ULIPs.

Reliance Life Insurance, Max New York Life and Bharti Axa are some of the private life insurance companies that offer ULPs. If ULPs are cut down to size, Reliance Life would be hit the most. Consider Reliance Super InvestAssure Plan. It must be the worst plan anyone would buy. A hefty 80% of first year premium is swallowed by the insurer as allocation charge. And Reliance sells this dubious product quite aggressively. It has been reported by the media that 40% of Reliance Life Insurance's new business premium came from sales of ULPs during the first quarter of the current fiscal ending June.

Interestingly, some of these companies have been telling the media that growth in premium income has been coming from ULIPs and not ULPs.

Another insurer to get hit would be Max New York Life. Secure Dreams of Max accounts for more than 10% of new business income. The minimum ticket size of Reliance Life's ULP and MYNL ULP is Rs5,000 and Rs15,000 per annum respectively.

None of the ULP products mention 'ULP' or 'Universal' anywhere in the policy document. How far is that mis-selling? To add to the confusion, Reliance ULP has market-linked returns whereas MYNL ULP is a non-linked insurance policy. The gullible customer today does not even know whether the policy is traditional or ULIP - let alone ULP - because of lack of proper classification and documentation.

Reliance Super InvestAssure does not allow policy surrender for the first three years. The surrender charge for the fourth year is 5%, fifth year is 3%, and nil from sixth year.

MNYL Secure Dreams does not allow policy surrender in the first year. The surrender charge for the second year is 90%, third year 80%, fourth year 70%, fifth year 50%, and nil from the 10th year.

There is no separate guideline for this complex, hybrid product where confusion is galore. IRDA is planning to cap the charges on ULPs, which are similar to ULIPs and also have a component of traditional plans. IRDA has received complaints from various sections of the industry claiming that some companies are selling ULPs under the guise of ULIPs and overcharging policyholders.

Speaking on the sidelines of a recent CII insurance seminar, J Hari Narayan, IRDA chairman said, "These are new products and pose some challenges. We will shortly come out with guidelines for ULPs including capping of charges. We do not want too much play in ULPs which are detrimental to customers."
The regulator may be trying to ensure that companies don't try to compensate for lower margins from ULIPs, post 1st September by pushing more ULPs. IRDA has not cleared any ULPs in the last three-four months and the product remains under the regulator's scanner even as agents are pushing them to earn higher commissions. A similar view was expressed to Moneylife by a senior official of another large life insurance company, which has no ULP products.

The regulator's warning on ULPs has gone unnoticed by investors as none of the ULPs declare themselves as such. It has surely triggered fear among insurers selling ULPs because they see it as an end to their lucrative product. Life insurance companies have been lobbying with IRDA not to cap charges on ULPs.
"The regulator should wait for three-four months to see how ULIP sales have picked up before taking any call on ULPs. In a free market, prices should be determined by the market," a Max New York Life official has been quoted in the media.

Another official has been quoted as saying, "There is no need for separate guidelines for ULPs. This is not a very complex product. We don't disclose the net asset value like ULIPs, but the expenses are explained upfront."
ULPs abroad come with advantages in terms of flexibility on the premium payment and sum assured, withdrawal and loan from accumulated account value. But the products offered by Indian companies don't have these facilities. The insurance regulator wanted insurers to launch fixed premium plans initially to test the market response and introduce variable premium/sum assured later on. The disadvantage of variable premium is that investors run the risk of the policy lapsing if they are not able to pay premiums that keep rising during the tenure of the policy.