You may soon be able to buy index-linked life insurance policies

Most of us have heard of Ulips (or unit-linked insurance plans). There might soon be a life insurance product called Ilip (index-linked insurance product). According to a notification by the Insurance Regulatory and Development Authority of India’s (IRDAI) on September 1, 2020, “The Authority is in receipt of requests from life insurers to allow them to offer index linked products. Current IRDAI, product regulations do not specifically permit insurers to sell index linked products. However, taking into considerations requests from life insurers, it has been decided to constitute a working group to examine various aspects of Index Linked products in Life Insurance Segment.”

The Working Group will be led by Dinesh Pant, Appointed Actuary of the Life Insurance Corporation (LIC) of India.

At present, life insurance has two product categories — unit-linked insurance plans and traditional plans.

Here is a look at what working group formed by IRDAI to examine various aspects of the index-linked life insurance product will do:

Terms of reference of the Working Group:

  • To examine the need for index-linked products in India especially w.r.t availability of various indexes and how it will better serve the needs and interests of customers relative to traditional savings product.
  • To examine the Index linked products, which were earlier available for sale in the Indian market in terms of product structure, ease of customer understanding and administrative processes, sales volumes and any other matter of relevance.
  • To study practices of other jurisdictions in respect of Index Linked product structure and their operations.
  • To provide recommendations on specific aspects like product structure and its pricing and reserving along with suggestions on possible amendments to current Regulations like Product and Investment Regulations.
  • The Working Group may invite external experts in the meeting for discussion on need basis.
  • The group shall submit its report within two months from the date of notification of the order

What is an ILIP?

Naval Goel, Founder and CEO, said, “Index-linked insurance policy (ILIP) returns will be benchmarked to an index which will allow the policyholder to get a guaranteed value. The benchmark index will be approved by IRDAI. ILIPs could also be offered as pension products and must give non-negative positive returns. “Index-linked insurance plan can be promoted as an unbundled product and cannot be sold with any other financial product,” Goel said.

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