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IRDAI will soon allow life insurance companies to offer index-linked products to their customers.
IRDAI has proposed introduction of index linked insurance product (ILIP), a passive fund that will replicate the performance of respective benchmarks. Interestingly, this index fund will come with insurance coverage.
The insurance regulator said that ILIP should ensure compliance with the principles of transparency, simplicity, fairness, awareness and liquidity of indices. It said, “The NAV shall be linked to underlying publicly available index. All other provisions of Unit Linked Insurance Products shall be applicable in mutatis mutandis to Index linked insurance products.”
Experts believe that ILIP may not find takers due to higher charges. Currently, ULIP charges separate fee under each head like premium allocation, fund management and mortality among other things.
“Index funds is getting popular largely due to its low cost. ILIP does not serve this purpose. However, if insurers let go of some unnecessary fees like premium allocation charges and make it more competitive like index funds then it will attract a section of people who need life cover with investment” said a Mumbai based insurance agent.
Earlier, in August, a private life insurer launched an index linked ULIP focussing on the small cap index under regulatory sandbox framework.