Index-Linked Insurance Policies by Insurance Regulatory and Development Authority of India (IRDAI)

The benchmark indices that includes 10-year Sovereign Bond Index, Sensex or Nifty

• Index-Linked Insurance Products (ILIP) may soon be available to the buyers of life insurance policies in the country
• 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)

Background for Index linked Insurance Policy

•  The Insurance Regulatory and Development Authority of India (IRDAI) has received a report from the Working Group (WG) set up for the purpose of examining the need for index-linked products in India
• Along with traditional insurance plans such as endowment and money-back plans and unit-linked insurance plans, you may get an option to buy Index-Linked Insurance plans in future
• The WG is of the view that there is relevance for Index-Linked Insurance Products which could be seen as a category which fits in between traditional products such as Endowment plans where features can appear less transparent and the unit-linked products (ULIP) where transparency is higher but the investment risks are completely borne by the policyholders
• The considered view of the WG was that ILIP could be seen as a suite of products wherein greater transparency can be facilitated to the customers with respect to product structure and benefits and where risks are in line with the choice made by the customers
• The WG therefore believes that ILIPs could be an apt alternative or complimentary option to the current conventional guaranteed products (including annuities and savings products) and ULIPs, particularly in the context of volatile investment markets /stressed interest rates

Key points of 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
• 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