Acknowledging the volatility in the market, Insurance Regulatory and Development Authority (IRDAI) recently allowed life insurance companies to offer settlement options to policyholders whose Unit Linked Life Insurance Policies (ULIPs) are maturing up to May 31, 2020.

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Here are all questions answered on the regulator’s move.

1. What is a settlement option under ULIP?

It is an option to be exercised by the policyholder of ULIP to receive the maturity proceeds in installments.

2. How does the settlement option work?

In case of ULIPs, the investment risk is borne by the policyholder. Normally, on maturity, the number of units available to the credit of the policy will be encashed at the Net Asset Value (NAV) per unit as on date of maturity. Thus, the maturity proceeds would depend on the Net Asset Value on the date of maturity. Whereas, the settlement option provides an opportunity to the policyholder to encash the units at the Net Asset Value on the date of each installment over a period not exceeding five years, instead of limiting to the value on one particular date.

3. At what frequency can the withdrawal be done?

It depends on the periodicity made available by the Insurer – monthly, quarterly, half-yearly or yearly.

4. For how long would one have the settlement option?

The period of settlement option can be for a maximum of 5 years from the date of maturity.

5. Can one terminate the installments and go for a complete withdrawal after the start of periodic installments?

Yes. This can be done anytime during the 5 years and one can opt for a complete withdrawal and the balance units as on the date of option will be encashed at the NAV rate prevailing on that date.

6. Will there be any charges for complete withdrawal?

There will be no charges for complete withdrawal

7. Would life insurance cover continue during settlement option?

No. In case of the death of the policyholder during settlement option period, the nominee will be paid the remaining units at the NAV as on the date of intimation of death.

8. What will be the charges to be deducted during the settlement period?

Only fund management charges are allowed to be deducted during the settlement period.

9. When will the first installment start?

The first installment will be paid on the date of maturity.

10. Would the settlement option be available for all Unit linked products?

Except pension and variable insurance products, settlement option is available for all the other linked products.

11. Who will bear the risk of investment during the settlement period?

The policyholder continues to bear the risk during the settlement period as the balance will continue to stay invested in the segregated fund and its value is subject to market risks. It may go up or down basis the market performance of your fund portfolio.

12. How will the Installment quantum be decided?

The available number of units under the policy shall be divided by the residual number of installments to arrive at a number of units for each installment which will then be multiplied by the net asset value on the date of payment.

For example, if the policyholder opts for settlement in five (5) annual installments, the first installment will be one-fifth (i.e., 1/5) of the number of units available to the credit of the policy on the date of maturity, multiplied by the NAV as on that date. The second installment will be one-fourth (1/4) of balance number of units multiplied by the NAV as on that date and so on.

13. After selecting settlement option, can I later change the mode of payment?

No. Once the payment starts, the mode of payment of installments cannot be changed except that you may withdraw the whole amount of fund value at any given point of time within the period.

First Published:Apr 8, 2020 4:36 PM IST