The Insurance Regulatory and Development Authority (IRDA) has finally addressed the concerns raised by the life insurance companies on the recent cap on charges on their market-linked plans.

It has removed the mortality and morbidity charges for policies from the overall expenses cap that is applicable to unit linked insurance plans (ULIPs).

Insurance companies may be the key beneficiaries of this move as they may see better long-term profitability on their ULIP products, relative to the earlier regime. With the new regulation, policy holders above 50 years may get a higher risk cover as their mortality charges may tend to be higher.

The cap on net yield, proposed in the earlier circular, had prompted insurance companies to reduce their risk cover for older policyholders due to the higher mortality premium included in their premia, which had to be cross-subsidised from the investment.

This circular also stipulates that insurers are not allowed to levy surrender charges on policies from the fifth policy year onwards. The regulator has also capped the fund management charge at 135 basis points irrespective of the duration of the policy.

In the earlier circular in July, the charges on net yield were capped at 300 basis points for a 10-year duration and 225 basis points on 15-year duration. This included fund management charges not exceeding 150 basis points for a 10-year product and 125 basis points for policies above 10 years.