Regulatory and Development Authority) second draft guidelines circulated to the insurance companies. The regulator had objected to the practice of giving loans against ULIPs in January.
Insurers may not give loan to policyholders against their ULIPs in case the regulator puts into operation the latest draft guidelines on new products. Loans against ULIPs started in September 2010 after the lock-in period on these products was raised from three to five years.
The loan amount depended on the equity exposure of each portfolio. The greater the equity exposure, the lesser the loan amount. Generally, the maximum loan limit on these products is up to 75% of the fund value and the loan tenure can be equivalent to the policy tenure.
Currently, a policyholder can get loan against saving and investment policies, both traditional and ULIPs up to 85% of the policies’ surrender value. In most cases, one is eligible for loan after holding the policy for three years. Interest charged on loan against insurance policy varies from company to company. Most company charge half-yearly interest of 9%. Policyholder needs to pay the interest with the regular premium payments.
Pankaaj Maalde, head-financial planning, ApnaPaisa.com, said, “There is no need to take loans in ULIPs as the partial withdrawals are allowed in ULIPs after minimum premium payment term (three or five years as the case may be) is over. So, one can easily withdraw from his funds in case of emergency instead of paying interest on loans. IRDA's decision is in the right direction and loans from ULIPs should be stopped.”
