INSURANCE companies may not give loan against your unit-linked policies in case Insurance Regulatory and Development Authority (IRDA) puts into operation the latest draft guidelines on new products.

At present, a policyholder can get loan against saving and investment policies, both traditional and unit linked insurance plans (Ulips) up to 85 per cent of the policies' surrender value.

Loans under Ulips shall not be allowed, said Irda in the second draft guidelines circulated to the insurance companies. After first draft of these norms was circulated last month, Irda had asked Life Insurance Council, the life insurance companies lobby group, to respond whether loans on Ulips be allowed or not.

The move to ban loans against Ulips has apparently been mooted to provide immunity cover to insurance companies from equity market volatility.

Equities are volatile, and one cannot be sure about future value of policies. Fund value may drop substantially if market tanks. In such cases, fund value could be lesser than the loan value.

This move to refuse loans against Ulips would deal a body blow to the policyholders as they would not be able to mobilise funds in case of an emergency. A customer cannot even surrender his Ulip policy and withdraw the fund value due to the five-year lock in period.

At present, in most cases, one is eligible for loan after sustaining the policy for three years. Interest charged on loan against insurance policy varies from company to company. At present, most company charge half-yearly interest of 9 per cent.

Policyholder needs to pay the interest along with the regular premium payments. At present, if an insurance company provides loan against Ulips, and market value of insurance policy slips below loan amount, the insurance contract is cancelled.

Life insurance companies are desperately waiting for guidelines on design of new products. Irda hasn't approved even a single product for launch in the market since the beginning of this financial year, as the insurance regulator wants all new products to comply with the new guidelines.

Some insurers say that the industry may not see new product launch till the end of the calendar year as it would take time to design products based on new guidelines. And, Irda will also take time to clear such products complying with the new guidelines.