New guidelines make ULIPs a much-improved product

Much has been spoken and written about whether the new guidelines on unit-linked pension schemes (ULIPs) have significantly improved the product. The regulatory process is evolutionary in nature, aimed at improving the products and services offered to consumers while keeping in view the changes in environment and consumer behaviour.

The new ULIP regulation also improves customer value proposition. However, this certainly does not mean that every product offered before the change in regulation was bad. In fact, it would be incorrect to term any products good or bad per se.

A sweeping judgment on a product category before or after an event would be flawed most of the time. Can we say that an analog camera is worse than a digital camera? In most cases in today you may say yes, but was that the case when digital cameras did not exist. Ultimately both analog and digital photography serves the same purpose of capturing memories for posterity. And even today there are some professional photographers who prefer to use film to capture images in specific situations. This clearly shows that the relevance of a product depends on the environment and specific needs of an individual.

If we take the specific example of life insurance, judgment on a product could be passed only after understanding the needs of an individual, his life stage needs and risk profile. Suitability of the product would depend on a thorough understanding of these factors. As a consumer as well as a seller, we should insist on a comprehensive sales process to have a win-win situation for both.

Before we analyse the highlights of the new ULIPs, I would like to focus on the process which every individual should go through to take an informed decision on product suitability.

Understand your needs: Insist on completing a meticulous fact-finding exercise. This will help you identify your short-term and long-term needs, your assets and liabilities and fund requirement at various points in your life.