Professional Documents
Culture Documents
The practice of insurance in the world is quite old infect. However, life insurance business, as
it is known today, is a much later development. It evolved from the great transformation in
life, which began with the decline of the agrarian society in the western countries in the 19th
century.
Industrialization with its cities, factories, cash economy and an urban µsaving¶ class set the
stage for life insurance as a large ± scale national institution. It can truly be that life insurance
is a product of modern industry. Growth of life insurance Company in any country will
illustrate introduced modern life insurance business didn¶t make much headway. The
business started taking its deeper roots only when in the late 19th century µIndia¶ insurance
companies appeared on the scenes and started accepting µIndia¶ lies freely on the same terms
as European lives in India. The growth of India life insurance business continued to remain
restricted till the Swedish movement gathered momentum. The business passed through the
period of ups and downs with the political and economic situation in the country.
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Nationalization
Even during days of the freedom struggle there was occasional demand for nationalization of
life insurance industry. The demand naturally gathers mare momentum after independence.
Mismanagement had lead to liquidation of as many as 25 life insurance companies in the
decade after independence. Another 25 insurance companies had during the same period so
frittered away their resources that their business had to be transferred to other companies. All
these cost financial losses and consequent suffering to several policyholders who had
entrusted their hard earned saving to the care of the company management. This misuse of
power, position and privilege by these companies in the private sector was one of the most
compelling reasons that influenced the decision of the government of India to nationalize the
life insurance industry in 1956. The life insurance industry in India had to be geared up for
raising resources for execution national programs. One of the objectives of the national plans
was to build a pay welfare state. It was therefore, essential that benefits of life insurance were
made available to every family in the country and that the business should be conducted with
utmost economy by the management acting in a spirit of trusteeship to enable maximization
of the people¶s saving that could be analyzed through the life insurance into the development
programs.
Objectives of nationalization:
The decision of the Government of India to nationalize life insurance industry was
implemented by the passage of the life insurance Corporation Act, 1956, by Parliament. The
objectives of nationalization of life insurance industry that emerged out of the discussion and
speeches in the parliament in the time passage of the act were: Spread of message of life
insurance as far and wide as possible reaching out beyond the more advanced urban areas
well into hitherto neglected areas.
Effective mobilization of the people¶s savings.
Complete security to policyholders.
Prompt and efficient services to the policyholders.
Conducting of the business with the utmost economy and with the full realization that
The money. Belonged to the policyholders.
Investment of funds in such a way as to secure maximum yield consistent with safety of
Capital.
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Indian Scenario:
Unfortunately the concept of insurance is not popular in our country .As per the latest
estimates, the total premium income generated by life and general insurance in India is
estimated at around a 5.95% of GDP. However India's share of world insurance market has
shown an increase of 10% from 0.31% in 2004-2005 to 0.34% in 2005-2006 India's market
share in the life insurance business showed a real growth of 11 % thereby outperforming the
global average of 7.7% Non-life business grew by 3.1% against global average of 0.20%. In
India insurance spending per capita was among the lowest in the world at $7.6 compared to
$7 in the previous year. Amongst the emerging economies, India is one of the least insured
countries but the potential for further growth is phenomenal, as a significant portion of its
population is in services and the life expectancy has also increased
Over the years.
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This is not the exact human life value but only a representation to give the customer a fair
idea of how it works.
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Introduction OF ULIPs
Most importantly, what are ULIPs? Here, you will find all the information you need to set
your mind at ease about how to invest in ULIPs, and which ULIP is right for you. ULIPs are
a category of goal-based financial solutions that combine the safety of insurance protection
with wealth creation opportunities. In ULIPs, a part of the investment goes towards providing
you life cover. The residual portion of the ULIP is invested in a fund which in turn invests in
stocks or bonds; the value of investments alters with the performance of the underlying fund
opted by you. Simply put, ULIPs are structured in such that the protection element and the
savings element are distinguishable, and hence managed according to your specific needs. In
this way, the ULIP plan offers unprecedented flexibility and transparency.
Working of ULIPs
It is critical that you understand how your money gets invested once you purchase a ULIP:
When you decide the amount of premium to be paid and the amount of life cover you want
from the ULIP, the insurer deducts some portion of the ULIP premium upfront. This portion
is known as the Premium Allocation charge, and varies from product to product. The rest of
the premium is invested in the fund or mixture of funds chosen by you.
Mortality charges and ULIP administration charges are thereafter deducted on a periodic
(mostly monthly) basis by cancellation of units, whereas the ULIP fund management charges
are adjusted from NAV on a daily basis.
Since the fund of your choice has an underlying investment ± either in equity or debt or a
combination of the two ± your fund value will reflect the performance of the underlying asset
classes. At the time of maturity of your plan, you are entitled to receive the fund value as at
the time of maturity. The pie-chart below illustrates the split of your ULIP premium:
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ypes of ULIPs
One of the big advantages that a ULIP offers is that whatever be your specific financial
objective, chances are that there is a ULIP which is just right for you. The figure below gives
a general guide to the different goals that people have at various age-groups and thus, various
life-stages.
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Based on circular issued by IRDA for LINKED business including regular ULIP plan,
pension plan, annuity plan
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Unit Linked products and business should, at the minimum, satisfy the following
features and criteria:
|easonable insurance cover with a linkage to the premium payment during the term of
the contract;
Availability of greater part of a targeted sum at the longer end;
Basic features of life insurance contract including long term nature;
Avoid technical jargon;
Remain simple for the public to understand.
Complete transparency in all aspects of the product terms & conditions;
Despite the investment risk being borne by the policyholder, the investment strategy
is aligned to long term nature of these contracts;
Adequate disclosure of information pertaining to investment of funds and the
elements of risk involved;
A standard method, across the industry, with regard to computation of NAV (Net
Asset Value);
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Guideline
Guideline are classified in to 6 parts
Part
I product design
II Market conduct
III Disclosure Norms
IV advertisements
V Furnishing of information
VI Rating of unit linked funds
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The accumulated fund value of unit linked pension / annuity products is the fund value as on
the maturity date. All ULIP pension / annuity products shall offer a minimum guaranteed
return of 4.5 per cent per annum or as specified by IRDA from time to time, on the maturity
date. This guaranteed return is applicable on the maturity date, for policies where all due
premiums are paid. Mortality and / or health cover could be offered along with the
pension/annuity products as riders, giving enough flexibility for the policyholders to select
covers of their choice.
In the case of unit linked pension / annuity products, no partial withdrawal shall be allowed
during the accumulation phase and the insurer shall convert the accumulated fund value into
an annuity at the vesting date. However, the insured will have an option to commute up to a
maximum of one-third of the accumulated value as lump sum at the time of vesting. In the
case of surrender, only a maximum of one-third of the surrender value can be commuted after
the lock-in period. The remaining amount
Policy term
Minimum for 5 years for individual policies
Group policy must be annually renewable
policy with limited payment term other than single premium must have minimum 5
year premium paying term
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Surrender Value
Surrender Value shall become payable only after 3 years from commencement of the
policy
surrender value must be communicated to the policy holder and trough all the
promotional material
Amended on 28th June 2010 ,implementation w.e.f. 1st September
2010
Lock -in Period has been increased from 3 year to 5 year for all Unit Linked products
No payment will be made for lapse/surrender/discontinuance between the lock-in period, but
will be made at the end of lock in period
Discontinuance of premiums
if all the due premium paid for consecutive 3 years and following premium are not
paid, than insurer must provide a revival opportunity to the policy holder within
prescribed time limit
cover will continues even in these revival period
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cover will
What policy continue up till
holder will revival last revival not revived than
receive time date policy must be
Discontinuance of
Due premiums
terminated on 3ry
paying at
anniversary or last
least consecutive 3 Surrender value no, it ends revival date (which ever
year premium if any yes immediately is later)
Discontinuance of surrender OR
continuance of cover
Due premiums
,levying appropriate
paying at least
charges, but only up till
consecutive 3 year the fund value reaches
premium surrender value yes yes to 1 full year premium
Loan
No loan must be granted in Linked insurance product
The maximum loan amount that can be sanctioned under any ULIP policy shall not
exceed 40% of the net asset value in those products where equity accounts for more
than 60% of the total share and shall not exceed 50% of the net asset value of those
products where debt instruments accounts for more than 60% of the total share.
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op up premium
if such option is stated in the contract
It can be made between the term of the policy, and only when regular premium up to
date is paid fully
Ulip Pension Annuity
º of the
total top up premium less
premium º of the total
paid till date premium paid till date
cover as per table 1.2,must No No
be considered as single
premium, and Cover is
top up no cover available throughout the
premium required contract
Partial Withdrawal
only after 3rd policy anniversary
top up premium must be available only after 3year has pass from the date of top up
done
Settlement option
can be given, but only maximum to 5 year from the date of expiry of policy
it should be periodic, and explicitly explain to and understood by the policy holder
Unit pricing
basic principle: ³he interests of policyholders who have purchased units in that fund
and not involved in a unit transaction should be unaffected by that transaction´
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Computation on NAV
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Having regard to the above, insurer shall ensure that each and every payment instrument is
banked with utmost expedition at the first opportunity, given the constraints of banking
hours, prudently utilizing every available banking facility (e.g. high value
Clearing, account transfer etc.) Any loss in NAV incurred on account of delays, shall be
made good by the insurer.
NAV for each segregated fund provided under unit linked life insurance contracts shall be
made available to the public in the print media on a daily basis. Also the NAV shall be
displayed in the respective web portals of the life insurer.
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^harges
As specified in Annexure I
Amendment circular
^ircular number : ºI|DAActlULIP-1 No: ºI|DAActlULIPsº-1
Date of issue : 22nd July 2009 20th august 2009
Implement Date :(for New products) 1st October 2009 1st October 2009
Implement Date :(For Modifying 1st January º1 or Discontinue
Existing products) 1st January º1 the product
|eference circular Number: 032/IRDA/Actl/Dec-2005 20/IRDA/Actl/ULIP/09-10
|eference circular Date: 21st December 2005 22nd July 2009
It is mandated that the cap on charges will be based on the difference between gross
and net yields of any product.
The net yield is the gross yield adjusted for all charges.
policy tenure
less than, equal
to 1 years 300 basis point 135 basis point
more than 1
years 225 basis point 135 basis point
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condition:
Extra premium due to underwriting emanating from extraordinary health conditions, cost of
all rider benefits, mortality charges, morbidity charges, service tax on charges (as
applicable) and any explicit cost of be excluded in the calculation of net yield investment
guarantee shall
The charges for the ULIPs as filed under the File & Use guidelines as approved by the
IRDA, shall not be modified or changed without obtaining the prior approval of the IRDA.
No surrender charges can be levied after completion of 5 anniversary of the policy by the
insurer, ie. policy holder will receive full fund value
The insurers shall distribute the overall charges, in ULIPs in an even fashion during the
lock-in period.
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other conditions
All the riders to be attached to a unit linked life insurance contracts shall be filed
separately with the Authority. The rider premium shall be exclusive of expense
loadings. The expenses shall be explicitly stated and levied separately in a
transparent manner to the fund.
However, insurers have the option to continue the existing practice of appropriating
the cost of rider by cancellation of units, provided, the rider cost including all the
other charges on the fund, relating to the rider premium (like allocation charge, fund
management charge etc), shall not exceed the actual rider premium filed with the
Authority.
Exposure to money market instruments under all linked products and to equities in
respect of group gratuity and group superannuation shall be as per existing
investment guidelines prescribed for other products.
Sales Illustrations:
The Life Insurance Council shall put in place in concurrence with the Authority by 31st
March 2006 the model/method for the sales illustration which should reflect the effect of
charges (in terms of reduction in return) corresponding to the lower and higher investment
returns and client specific details like age, intended premium size, the contract term, sum
assured etc.
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1. Market conduct:
For better understanding of the complexities of Unit Linked Life Insurance Products, the
Life Insurance Council shall put in place, in concurrence with the Authority, by 31st March
2006 the guidelines for the market conduct which should include interalia the following:
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For Investment
The policyholder should be given the full details, using the same font, related to the
investments, as an annual report, covering the fund performance during the
preceding financial year in relation to the economic scenario, market developments
etc. which should including particulars like:
The investment strategies and Risk Control measures adopted.
The changes in fundamentals, such as interest rates, tax rates, etc., affecting the
investment portfolio.
The composition of the fund (debt, equity etc.), analysis within various classes of
investment, investment portfolio details, sectoral exposure of the underlying funds
and the ratings of investments made.
Analysis according to the duration of the investments held.
Performance of the various funds over different periods like 1 year, 2 years, 3years,
4 years, 5 years and since inception along with comparative benchmark index.
All the Life Insurers are required to issue the periodical statements of accounts to
policy holders
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PA|-IV Advertisements
Language used
The terminology used in all the advertisements shall be simple, concise and understandable
to convey the exact meaning to the policyholders as all of them may not be sophisticated in
legal or financial matters and shall avoid the usage of technical jargon and also terms which
can have different interpretations or detract the policyholders.
Past Performance
Care should be taken while reporting the past performance of the funds in
advertisements, as well as in any other promotional material like sales illustrations,
sales brochures etc. It should contain only the results of the funds and be duly
supported by related figures. The emphasis on past performance must be reduced in
the advertisements, however, past performance, wherever intended to be reported,
shall contain:
Compound annual returns (shall adopt standardized computations) for the previous
five calendar years, expressed as a percentage rounded to the nearest 0.1%.
Where last five calendar years data are not available, as many years as possible
must be shown.
Where data is not available for at least one calendar year, past performance shall not
be shown.
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The life insurers shall not be permitted to demonstrate a link between the past
performance and the future.
It should clearly state, in the same font, that the past performance is not indicative
of future performance.
Corresponding benchmark index performance, if any, shall be included.
Unit Linked Life Insurance products are different from the traditional insurance
products and are subject to the risk factors.
The premium paid in Unit Linked Life Insurance policies are subject to investment
risks associated with capital markets and the NAVs of the units may go up or down
based on the performance of fund and factors influencing the capital market and the
insured is responsible for his/her decisions.
MMMMMMMMMMMis only the name of the Insurance Company andMMMMMM is only the
name of the unit linked life insurance contract and does not in any way indicate the
quality of the contract, its future prospects or returns.
Please know the associated risks and the applicable charges, from your Insurance
agent or the Intermediary or policy document the insurer.
The various funds offered under this contract are the names of the funds and do not
in any way indicate the quality of these plans, their future prospects and returns.
In view of the paucity of time and space, on the advertisements in the hoardings and
posters and in audio visual media, wherever the unit linked life insurance contract
has been advertised, point no (1.4.2) and (1.4.3) should have a place invariably.
The advertisements shall not compare funds offered by one insurer with funds
offered by another insurer, implicitly or explicitly.
Any advertisement reproducing or purporting to reproduce any information
contained in as policy document shall reproduce such information in full and
disclose all relevant facts and not be restricted to select extracts relating to that item
which could be misleading.
Every advertisement must comply with IRDA (Insurance Advertisements and
Disclosure) Regulations, 2000.
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1. Furnishing of Information to IRDA: All the life insurers have to furnish data in respect of
the following information relating to their unit linked policies to the Authority in a
prescribed format every half year i.e. up to September and March (to be received within
two months from the close of the half-year), to enable the Authority to monitor the
functioning of various options offered under unit linked policies.
1.1 switching options exercised by the policy holder.
1.2 premium redirections exercised by the policy holders.
1.3 partial withdrawals allowed.
1.4 top-up premiums received.
1.5 insurance cover multiple granted for each product term-wise separately for Single
Premium and non-Single Premium contracts.
1.6 Expense ratios and fund performance for each fund.
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To Get Rating of Unit Linked Fund from an independent third party is a voluntary decision
of the insurer.
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This circular provides guideline regarding the disclosure related to Unit Linked Business
which are required to be part of the Annual Accounts of the Company
1. Segregation of the Unit Linked Revenue A/c into two components, viz.,
(i) Non -Unit Funds and (ii) Unit Fund (which form Addendum to the Form A-RA);
2. Format of reporting of the segregated funds - Revenue A/c, Balance Sheet and the
underlying Schedules;
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Implementation of circular 054/IRDA/F&A/Feb-2007 has been change and will be w.e.f 1st
April 2007
If there is 5% and above investment in any script than it should be shown explicitly under
Industry wise disclosure (now relaxed), new guideline if there is 5% and above investment in
any script than it should be shown explicitly under Industry wise disclosure
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Linked business
21: With guarantees 1.8% 0.0%
22: Without guarantees 0.8% 0.0%
Group Business
Linked business
24: With guarantees 1.8% 0.0%
25: Without guarantees 0.8% 0.0%
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Life Insurance Companies have to conform to the proposed format (attached below)
which will provide complete details of the charges to be paid and amount that will be
available for investment each policy year.
Information specific to the particular policyholder should be used.
Insurers need to give figures about the guaranteed benefits as well as non-guaranteed
benefits for each year with regards to interest rates by the Life Insurance Council¶s
circular. Currently, interest rates used for benefit illustration are 6% and 10%. (The
table attached below is used).
The policyholder has to sign the tables with person selling on the day when he/she
signs the proposal form. The tables will be part of the policy document and thus a
copy has to be sent to the holder along with the policy document.
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Annexure-I: erminology
1 Approved erminology:
1. Sum Assured: Sum assured is the guaranteed amount, net of permissible partial withdrawals,
of the benefit that is payable on death of the life assured.
2. Guaranteed Surrender Value: As defined in the provisions of Section 113 of Insurance Act,
1938.
3. op-up premium: A top up premium is an amount (s) paid at irregular intervals during the
period of contract. This is an additional amount of premium over and above the contractual
basic premiums charged at the commencement of the contract.
4. Fund value: Fund value at any point of time represents the value of units at that point of time
i.e. number of units multiplied by the price of the units.
5. Partial Withdrawals: Any part of fund that is encashed/withdrawn by the policyholder during
the period of contract is referred to as partial withdrawal.
6. Switches: This is the facility allowing the policyholder to change the investment pattern by
moving from one fund to other fund(s) amongst the funds offered under the underlying
product of the insurer.
7. Premium re-direction: This is the facility allowing the policyholder to modify the allocation
of amount of renewal premium into a different investment pattern from the option
(investment pattern) exercised at the inception of the contract.
8. Surrender: Surrender means terminating the contract once for all. On surrender a surrender
value is payable which is usually expressed as fund value less the surrender charge (the
surrender charge could be zero at the later part of the contract).
9. |egular Premium ^ontracts: ULIPs where the premium payment is level and paid in regular
intervals like yearly, half-yearly etc.
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10. Single premium contracts: ULIPs where the premium payment is made by a single
contribution (a one time payment) at the inception.
11. Limited premium payment contracts: ULIPs where the premium payment period is limited
compared to the policy term. The premium is payable at regular intervals like yearly, half-
yearly etc. premium contracts.
12. Whole Life ^ontracts: ULIPs which do not have a definite policy term and the contract
terminates on death of the life assured. This can be issued with item 9 or 10 or 11 stated
above.
13. Sales illustrations: This is a document furnished in accordance with life insurance council
circular number LC/SP/Ver. 1.0 dated 3rd February, 2004, conceals the effect of charges on
the value of benefits at various stages of a unit linked contract. The illustrations furnished for
these contracts shall inter alia furnish the yield, net of charges, corresponding to both the
higher and lower interest rate scenario.
14. Death benefit: The amount of benefit which is payable on death as specified in the policy
document. This is stated at the inception of the contract.
15. Maturity benefit: The amount of benefit which is payable on maturity i.e. at the end of the
term, as specified in the policy document. This is stated at the inception of the contract.
16. Survival benefit: The amount of benefit which is payable at specific intervals, on survival to
that period during the period of contract as specified in the policy document. This is stated at
the inception of the contract.
17. Units: This is a portion or a part of the underlying segregated unit linked fund. Re. 1/-. This
is stated in the unit linked policy documents.
18. |ider benefits: The amount of benefit payable on a specified event (for instance, accident),
and is allowed as add on to main benefit.
19. Settlement options: A facility made available to the policyholder to receive the maturity
proceeds in a defined manner (the terms and conditions are specified in advance at the
inception of the contract).
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20. Unit Linked Fund: Unit-linked fund pools together the premiums paid by policyholders and
invest in a portfolio of assets to achieve the fund(s) objective. The price of each unit in a fund
depends on how the investments in that fund perform. The fund will be managed by the
insurer.
21. Fund Value: This is the product of the total number of units under a policy and the NAV
(Net Asset Value per unit).
22. Valuation of funds: The determination of the value of the underlying assets of the unit fund.
23. |edemption: Encashing the units at the prevailing unit price offered by the life insurer where
the process involves cancellation of units. This is applicable in case of exercising partial
withdrawal, switch, maturity, surrender etc.
24. Allocation: creating the units at the prevailing unit price offered by the life insurer. This is
applicable in case of premium payments and switches.
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Annexure-II: ^harges
1.1 This is a percentage of the premium appropriated towards charges from the premium
received. The balance known as allocation rate constitutes that part of premium which is
utilized to purchase (investment) units for the policy. The percentage shall be explicitly stated
and could vary interalia by the policy year in which the premium is paid, the premium size,
premium payment frequency and the premium type (regular, single or top-up premium).
1.3 If Actuarial Funding is adopted, this charge may also include an initial management
charge, which is levied on the units created from the first years¶ premium, for a specified
period.
O If premium = Rs.1000 & Premium Allocation Charge: 10% of the premium;
then the charge are: Rs.100 and Balance amount of premium is Rs.900 and is utilized to
purchase units.
º.1 This is a charge levied as a percentage of the value of assets and shall be appropriated by
adjusting the Net Asset Value as prescribed in para 10.5 of PART-I.
º.º This is a charge levied at the time of computation of NAV, which is usually done on
daily basis.
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3.1 This charge shall represent the expenses other than those covered by premium allocation
charges and the fund management expenses. This is a charge which may be expressed as a
fixed amount or a percentage of the premium or a percentage of sums assured. This is a
charge levied at the beginning of each policy month from the policy fund by cancelling units
for equivalent amount.
3.º This charge could be flat throughout the policy term or vary at a pre-determined rate. The
pre-determined rate shall preferably be say an x% per annum, where x shall not exceed 5.
4 Surrender ^harge:
4.1 This is a charge levied on the unit fund at the time of surrender of the contract.
4.º This charge is usually expressed either as a percentage of the fund or as a percentage of
the annualized premiums (for regular premium contracts).
. Switching ^harge:
.1 This a charge levied on switching of monies from one fund to another available within
the product. The charge will be levied at the time of effecting switch and is usually a flat
amount per each switch.
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ÿ. Mortality charge:
ÿ.1 This is the cost of life insurance cover. It is exclusive of any expense loadings levied
either by cancellation of units or by debiting the premium but not both. This charge may be
levied at the beginning of each policy month from the fund.
ÿ.º The method of computation shall be explicitly specified in the policy document. The
mortality charge table shall invariably form part of the policy document.
ÿ.3 Mortality rates are guaranteed during the contract period, which are filed with the
Authority.
7.1 |ider cover cost: This is the premium exclusive of expense loadings levied separately to
cover the cost of rider cover levied either by cancellation of units or by debiting the premium
but not both. This charge is levied at the beginning of each policy month from the fund.
8.1 This is a charge levied on the unit fund at the time of part withdrawal of the fund during
the contract period.
. Miscellaneous charge:
.1 This is a charge levied for any alterations within the contract, such as, increase in sum
assured, premium redirection, change in policy term etc. The charge is expressed as a flat
amount levied by cancellation of units.
Ô Rs.100/- for any alteration such as increase in sum assured, change in premium
mode etc.
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1 Notes:
1.1 All the charges other than premium allocation charge and cost of life insurance/mortality
cost shall have an upper limit.
1.º All the charges stated above, where relevant, may be modified with supporting data
within the upper limits with prior clearance from the Authority.
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Bibliography
www.irda.corg
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