IRDA released the new norms for selling Universal Life products and said that from now all such products will be named as variable insurance products (VIPs) and have a lock-in period of minimum three years.

Variable insurance product is a type of life insurance product based on cash value, means the policy is created with the insurer where the premium above the cost of insurance is invested in a wide variety of separate account and the policyholder will have the opportunity to achieve hug gains in the cash value and those gains are tax free to the beneficiary. In this type of product policyholder assume the risk for the performance of the policy and a minimum guaranteed death benefit is provided based on the agreed rate of interest.

On Tuesday IRDA issued the new guidelines for the variable life product after they suspended the sale of the same last month. The new guideline suggests more transparency and policyholder will be able to know what is happening with the premium they paid.

Here is the brief extract of guidelines issued by IRDA:

• All VIP shall only be offered under non-unit linked platform and shall not be permitted on unit linked platform.
• VIP shall be defined as a Non- Linked Life Insurance product that provides:

1. A Death benefit equal to the guaranteed sum assured plus the balance in the policy account.
2. A Maturity benefit equal to the balance in the policy account together with a terminal bonus, if any, as applicable

• Every policy shall have a corresponding policy account whose balance shall depict the accrual to the policyholder.
• VIP shall only provide mortality cover, no other contingency shall be covered other than death. The sum assured shall at least be ten times annualized premium.
• The policyholder shall be offered flexibility of changing the sum assured during the currency of the contract subject to a minimum sum assured as approved in the F&U clearance accorded by the Authority. When the sum assured is changed, such change will be effective from the immediate next policy anniversary.
• Only level regular premiums will be permitted in these policies. Single premium or Limited premiums shall not be allowed.
• All Variable insurance products shall have a lock-in period of three years.
• No partial withdrawal shall be allowed under this product.
• Top-up premium is allowed throughout the term.
• The premium shall comprise the sum of the following four components:

1. The first component shall be termed as the Risk Premium which shall be used to provide the guaranteed sum assured payable on death.
2. The second component shall be the expense component;
3. The third component shall be the commission rates offered under the product;
4. The fourth component shall be termed as the policy premium.

• In first year expense component and commission component together shall not exceed 27.5% of the premium, in 2^nd & 3^rd year it shall not exceed 7.5% and shall not be more than 5% from 4^th year onwards. And on top-up it can be of maximum 3%.