In the
last eight months the IRDA had informally expressed its uneasiness with
the 'highest NAV guaranteed products' at several forums. The
regulator's argument was that such products lead to systemic risks with
the way funds were managed, and also pose a risk of a heavy sell-off in
equities when stock markets fall. Thus, in order to protect
policyholders' interest, IRDA has asked life insurers to stop selling
highest net asset value (NAV)-guaranteed products.
Highest NAV-guaranteed products are those that promise to pay the highest value the fund achieves during a certain period, say, five or seven years. However, to maintain that NAV consistently, insurers have to take risks by investing in stocks aggressively, which could lead to undue risks, as per the IRDA. It is noteworthy that, these products had become the largest selling Unit-Linked Life Insurance Policies (ULIPs), after the new guidelines on ULIPs came in September 2010.
Some of the other actions undertaken by IRDA to uphold policyholders' interests' are:
On account of the above steps undertaken by the IRDA, policyholders are set to benefit in a number of ways. With the 'highest NAV guaranteed products' being squashed by the IRDA, there would be less mis-selling under the guise of highest NAV guarantee. Increasing the minimum life cover will help policyholders as in case of any unforeseen eventuality the policyholder's family receives a sizeable death benefit.
Highest NAV-guaranteed products are those that promise to pay the highest value the fund achieves during a certain period, say, five or seven years. However, to maintain that NAV consistently, insurers have to take risks by investing in stocks aggressively, which could lead to undue risks, as per the IRDA. It is noteworthy that, these products had become the largest selling Unit-Linked Life Insurance Policies (ULIPs), after the new guidelines on ULIPs came in September 2010.
Some of the other actions undertaken by IRDA to uphold policyholders' interests' are:
- Single premium policies to be issued only under special categories
- A minimum death benefit of at least 10 times of the annualised premiums in case of traditional products
- New guidelines for traditional insurance products
- Approval of new insurance products to be restricted to those following the framework suggested for new product design
On account of the above steps undertaken by the IRDA, policyholders are set to benefit in a number of ways. With the 'highest NAV guaranteed products' being squashed by the IRDA, there would be less mis-selling under the guise of highest NAV guarantee. Increasing the minimum life cover will help policyholders as in case of any unforeseen eventuality the policyholder's family receives a sizeable death benefit.
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