What Is Unit Linked Insurance, Why ULIPs Can't Be Advertised As Investment Product?

The Insurance Regulatory and Development Authority of India (IRDAI) recently issued a master circular barring the promotion of Unit Linked Insurance Plans (ULIPs) as ‘investment products’.

ULIPs in India are regulated by the IRDAI, which has laid down comprehensive guidelines to ensure consumer protection, transparency, and fair practices in the marketing and administration of ULIPs.

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Unit-linked or index-linked insurance products shall not be advertised as ‘investment products’, IRDAI said in a master circular dated June 19.

Insurers will have to specifically state that market-linked insurance plans are different from traditional endowment policies and carry risks.

Likewise, participating (with bonus) endowment policies will have to state upfront that the bonuses projected in benefit illustrations are not guaranteed.

What Are ULIPs?

A ULIP is a financial product that combines life insurance coverage with investment options.

ULIPs offer the twin benefits of investment and insurance. Part of the premium paid by the policyholder goes towards providing life insurance coverage, and the remaining part is invested in equity, debt, or hybrid funds as per the policyholder’s choice.

Life Insurance: A portion of your premium goes towards providing a death benefit for your beneficiaries in case of your passing.

Investments: The remaining part of your premium is invested in the market, typically in a mix of stocks and bonds. The growth of this investment depends on market performance.

Why Can’t It Be Advertised As An Investment Product?

IRDAI’s new regulations aim to prevent misleading advertising and ensure consumers understand these factors:

Market Risk: Unlike traditional insurance plans, ULIP returns are not guaranteed and depend on how the market performs.

Hybrid Product: It’s not purely an investment. You get insurance coverage along with the investment option.

So, What Can ULIP Ads Say?

ULIP ads can still promote the benefits of the product, but they must be transparent about the risks involved. They should explain that ULIPs are a combination of insurance and investment and that the returns are subject to market fluctuations.

All the advertisements of linked insurance products and annuity products with variable annuity payout options shall disclose the risk factors, IRDAI said in its circular.

“All insurers shall advertise the launch of unit-linked funds or index-linked funds under existing insurance products or new insurance products, only with reference to the underlying life insurance coverage and the products associated with it.

“Further, no press release or statement shall be issued by the insurer without making a reference to the life insurance coverage and the associated products,” the master circular said.

Besides, advertisements for all linked and annuity products with variable payouts must comply with the standards set by the Advertising Standards Council of India, it added.