No limit on customer charges for traditional plans: Reports

The finance ministry wants the insurance regulator to close the expense gap between ULIPs and traditional policies.

According to insurance companies, IRDA (Insurance Regulatory and Development Authority) is discussing about bridging the arbitrage between ULIPs (unit-linked insurance plans) and traditional policies, the media reports said.

The finance ministry wants the insurance regulator to close the expense gap between ULIPs and traditional policies. But no initiative has been taken to set a cap on customer charges for traditional policies, which is not the case with ULIPs, the reports added.

In case of ULIPs, the policyholders’ charges are capped at 4% of the net and gross yields, depending on the term of the policy. However, traditional plans have no such cap. There is an overall limit for the company, which cannot exceed 100% of the first-year premium. ULIPs have a cap on policy administration expense, premium allocation and fund management expenses, the reports concluded.