Policyholders of unit-linked insurance plans (ULIPs) will soon see a higher amount of their premium being invested, with the Insurance Regulatory and Development Authority (IRDA) deciding to cap charges. The move comes close on the heels of Securities and Exchange Board of India abolishing the distribution commissions for mutual funds on June 18.

ULIPs are insurance-cum-investment plans where a high portion of the premium is deducted towards charges such as premium allocation charge (this includes the commission for insurance agent), mortality charge (for providing insurance cover), policy administration charge, switching charges and other miscellaneous charges. Only the remainder is invested. As a result, ULIP buyers lose a high portion of their premium as charges to insurance companies.

"Yes, we are looking at introducing caps on charges on ULIPs, said J. Hari Narayan, chairman, IRDA. "We are looking at how to do it. We will take a decision soon."