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Kalyani Narayanan, CEO says
Decide if you should invest in ULIP based pension plans now or after September 1st
You may already know that IRDA is putting more restrictions on the ULIP based Pension Plans that life insurance companies are offering. I am elaborating it in this mail.
Life insurance means not only protecting the family from the risk of the breadwinner dying too early in life, but also an individual from living too long. Let us face it. Thanks to modern medicine, people are living longer, so long that our retirement years may be even more than the working years.
We may work from 25 to 60, that is about 35 years of working, and could live till 85, that is about 25 years of not working. The same applies to our spouses also. Worse, maintaining your lifestyle and health becomes extremely challenging as the day goes by. How many of us are ready to depend on our children to maintain us in our old age?
That is why pension based plans are sold by insurance companies - not to protect individuals from dying too young but to protect individuals when living too long.
I have appended below, the list of all the changes that would happen to the entire Pension based ULIP products from September 1st onwards.*
There have been a lot of concerns regarding these changes mandated by IRDA. For instance,
1. For purely a pension product, why should they have a life cover or health cover compulsorily built into it? Customers, who want to build a pension fund, unnecessarily have to pay premium for the mortality charges thus reducing the amount that goes to investment.
2. Why guarantee only 4.5% return? What good does it do to the pension fund which we want to grow at least at inflation beating rate to grow at 4.5%? Even PF / EPF pays 8 – 8.5%. Insurance companies would simply invest in debt funds (which pay at 4 - 6%) without participating in the equity market.
3. Why can't we withdraw in the middle? Why do we have to avail our investment as loan for which insurance companies can charge interest rates?
So, if you are one of those who want higher returns, no life cover, and early withdrawal option in your ULIP based pension funds, then I suggest that you CONTACT ME IMMEDIATELY by replying to this mail before these plans are gone forever!
Otherwise, just wait and watch. All the insurance companies would be closing the current ULIP based Pension products and come up with new products to comply with IRDA norms.
*Here are the changes related to ULIP based Pension Plans from September 1st onwards.
* The lock-in period for ULIPs from 3 to 5 years
* All Top Up Premiums also to have insurance cover
* No partial withdrawals for ULIP Pension/Annuity products allowed
* ULIP pension products must be converted into an annuity.
* ULIP Pension/Annuity Products to offer guarantee of 4.5%Year. This will protect the life time savings of pensioners from any adverse market fluctuations at the time of maturity.
* Loan up to 40% of NAV can be sanctioned
* All limited premium ULIPs, other than single premium products, shall have premium paying term of at least five years
* ULIP charge structure is evenly spread out over the tenure of product. Charges on ULIPs are mandated to be evenly distributed during the lock-in period to ensure that high front-ending of expenses is eliminated.
* The pension product should be sold either with life cover or health cover
* For policies < 10 yrs, maximum of only 3% p.a. can be levied as total charges
* For policies > 10 yrs, maximum of only 2.25% p.a. can be levied as total charg
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