The Insurance Regulatory and Development Authority's (Irda) cap on fees levied on Ulips will not be applicable to policies that have been already sold by insurance companies.

"However, all existing Ulip products or schemes that are on offer from an insurance company will have to be restructured by December 31,"said S B Mathur, secretary general of Life Insurance Council said. In its order, Irda on Wednesday said the cap will be applicable to new policies sold from October 1. In case of existing policies, Irda has given life insurers till December 31 to modify the charges.

Irda has capped the overall charges at 3 per cent of gross yield in case of Ulips with tenure of 10 years or below while fund management charges have been restricted at 1.5 per cent.

In case of insurance policies of above 10 years, Irda has capped total charges at 2.25 per cent, of which the fund management charges will not exceed 1.25 per cent. The entire effect of charges will reflect in the net yield. The overall charge in Ulips is anywhere between 2-4 per cent depending on the type and tenure of the policy. More that 40-50 per cent of insurance products available in the market will have to be overhauled to comply with the Irda order, insurers said.

Many say the mortality charge should be kept out of the overall cap, as mortality charge defers with the age of the insured person.

Insurance companies have approached the Life Insurance Council to remove mortality charges out of overall charges. "We have asked all insurers to examine the effect of this order and come back to us within two to three days. We will then decide whether to approach the regulator,"Mathur said.

Guarang Shah, MD, Kotak Life Insurance, said, "If mortality is out of the overall charges, 97 per cent of our products will not have to be restructured. Keeping mortality in the overall cap will reduce the insurance component in Ulips and they will become more of an investment product."

"Ulips provide flexibility in choosing the sum assured. Hence, including mortality charges in the overall charge cap may impact customers adversely, especially the aged," said Nitin Chopra, CEO of Bharti AXA Life Insurance.