Insurance regulator IRDA stated that it would raise the lock-in period from 3 to 5 years, in a bid to check mis-selling of Unit Linked Insurance Policies (ULIPs) where ULIPs are investment cum insurance products, which invest in equity and debt market depending on the choice of the policyholders.
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However, the circular in this matter is expected to be issued in the next 10 days while the new norm would be applicable to all the ULIPs filed on or after October 1.
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Moreover, at present, the minimum tenure for ULIPs is 5 years while partial withdrawal is allowed after 3 years.
A longer lock in period for ULIPs, one of the hottest investment products, is meant to promote long term investments.
The move would reduce early lapsation and would benefit the companies since administrative and marketing cost will be recovered.
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But insurers apprehend that retail investors could divert their money into mutual funds.
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In addition, last month, the regulator had directed all life insurance companies not to impose surrender charge for policies surrendered from the fifth policy year.
A few weeks back, IRDA had put a cap on charges for Ulip plans.
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