What are Index-Linked Insurance Policies?

Recently, a committee was set up by the Insurance Regulatory and Development Authority of India (IRDAI) on the request of some insurers. The committee has recommended to introduce the index-linked insurance policies (ILIPs).

Index-linked insurance policies (ILIPs)

• The returns coming from the ILIPs will be linked to benchmark indices.
• ILIPs are the Insurance products linked with the benchmark indices. It includes 10-year Sovereign Bond Index, Sensex or Nifty etc.
• The ILIPs linked with the government bonds are less risky while those linked with the equity-based indices will go through the fluctuation in returns in accordance with the stock market performance.
• ILIPs are the alternative or complementary option to the current conventional guaranteed products such as annuities and savings products.
• It can also be used as the unit-linked insurance plans (ULIPs) with respect to the volatile markets and stressed interest rates.
• The ILIPs can be regarded as a life insurance policy under Section 10(10D) and taxability of the Insurance Policy Act.

Significance of the ILIPs

The ILIPs offer a greater transparency. Index-linked products can fit in between the traditional products with less transparency and the Unit-linked products with higher transparency.  In the ILIPs the investment risks will be completely borne by the policyholders as in the cases of Unit-Linked products.

Insurance Regulatory and Development Authority of India (IRDAI)

It is an autonomous, statutory body. It regulates and promotes the insurance and re-insurance industries of India. The body was established under the Insurance Regulatory and Development Authority Act, 1999. Its headquarters are in Hyderabad, Telangana. The headquarter moved from Delhi to Telangana in 2001. IRDAI comprises of 10-member namely the chairman, five full-time members and four part-time members who are appointed by the government of India.  Presently, Dr. Subhash C. Khuntia is the chairman of the body.

Unit Linked Insurance Plan (ULIP)

It is a product offered by insurance companies. The product provides the investors both the insurance and the investment under an integrated plan. The policy holders can customize the investment plan according to them. In India, the first ULIP was launched by the Unit Trust of India (UTI).

Month: Current Affairs - February, 2021