India: IRDAI bans insurers from pushing ULIPs as investment products

| 25 Jun 2024

To curb the mis-selling of life insurance policies as pure investment products, the Insurance Regulatory and Development Authority of India (IRDAI) has barred insurance companies from advertising unit-linked insurance plans (ULIPs) as investment plans.

The insurance regulator said all insurers shall advertise the launch of ULIPs only with reference to the underlying life insurance coverage and the products associated with it.

“Further, no press release or statement shall be issued by the insurer without making a reference to the life insurance coverage and the associated products,” IRDAI said in a circular.

This comes in the wake of insurers launching mid-cap and small-cap ULIPs in the past couple of years when the two indices were rising steadily. Investors were mis-sold these products as pure investment products, said industry players. 

In addition, the regulator said that all the advertisements shall disclose that the past performance does not construe any indication of future bonuses, and other factors – a move that is similar to Securities and Exchange Board of India guidelines for mutual funds. 

Insurers will have to specifically state that market-linked insurance plans are different from traditional endowment policies and carry risks. Likewise, participating (with bonus) endowment policies will have to state upfront that the bonuses projected in benefit illustrations are not guaranteed. 

The insurance regulator also added that there should be no advertisement on services related to insurance, comparison of rates or discounts to erstwhile tariff, highlighting the potential benefits of an insurance product without a fair indication of associate risks, exaggerating the benefits of the product, etc.

“This is a progressive move. It could have come earlier,” said Mr Ashvin Parekh, managing partner of Ashvin Parekh Advisory Services. 

Mr Parekh said this was a necessary step given that the stock market has done pretty well in the last few years. “There is a tendency to sell ULIPs on the basis of investment returns rather than on protection basis. It is not necessary that manufacturers encourage this, but this tendency exists,” he said, reported Financial Express.