The life insurance industry has been a dynamic one since the entry of the private players into the insurance market. Customer focus and product innovation have taken centrestage, which, one has to say, has been a departure of sorts from the days gone by. The year 2005 was no different for this sector; which saw a lot of activity.

• Budget changes

The most significant event of the year for the insurance sector was the increase in tax benefits on life insurance plans. Earlier, the benefits on premium payments stood at Rs 70,000 for the year; these were brought within the consolidated Section 80C banner to Rs 100,000. This limit includes Section 80CCC pension plan tax benefits upto a maximum of Rs 10,000.

Unit-linked insurance plans (ULIPs) continued to rule the roost; taking off from where they had left last year. For many life insurance companies, ULIPs accounted for more than half of new business. Recently, the Insurance Regulatory and Development Authority has come out with certain guidelines for ULIPs. It has proposed a compulsory 3-year lock-in period for ULIPs.

In other words, individuals will not be allowed to withdraw any money from their ULIP 'account' for the first 3 years. The primary intention behind this is to preserve the identity of life insurance (and therefore ULIPs) as a long-term savings option.

The IRDA has also specified that the minimum tenure for ULIP policies be 5 years and that a ULIP have a 'sum assured' and not be totally linked to the markets. In addition, the IRDA has also proposed that life insurance agents be given separate training for selling ULIPs as ULIPs demanded better understanding than that currently prevalent in the industry.

The guidelines will be effective from June 2006. These guidelines by way of 'restructuring' the product, will help in protecting the interests of individuals and also go a long way in curbing the malpractices currently prevalent in the life insurance industry.

(http://inhome.rediff.com)