Plans

Share of unit-linked plans in policy sales has dropped to 50% from 80%

STRINGENT guidelines and reduction of cha rges for unit-linked insurance policies (Ul ips) notwithstanding life insurers in India are still gung-ho about the market-linked product. The contribution of Ulips, among the overall policy sales, which was as high as 80-90 per cent earlier had come down to 50 per cent for many players in 2010-11.
This has resulted in the increased sale of traditional term policies, which contributed almost 50 per cent of the sales of most life insurers in 2010-11, against 20-30 per cent in the previous years.

“The reduction in Ulip charges has meant that more money from the first year premium of customers would go towards investment rather than being spent off as commissions and charges for distributors.

Insurance companies too, which had wooed distributors earlier with foreign holidays and freebies are now more measured in the way the premium paid by the customer is spent. This is good for the customers as well as a reality check for in

surers," says Mani Kant, vice-president, India Insure Risk Management and Brokerage Services.
The various guidelines imposed by Irda on Ulips like even distribution of charges during the lock-in period, reduction in distribution charges have resulted in many insurance companies re-designing their Ulips and making them attractive for buyers as well as remunerative for themselves.

"Those customers for whom the priority is financial and life protection term policies are still the best. But we are also working to ensure that our Ulip products are designed in a way that offer systematic saving as well as the protection element that an insurance policy is meant to provide,” says Prashant Tripathy, CFO, Max New York Life Insurance.

Though at the look of it traditional policies do not appear to have the dozen off charge that Ulips have, the fact is that none of the charges are disclosed. The returns declared for the customer at the end of the term period, including the

annual bonus, are net of all the deductions made by the company, experts say.
Premium paid for tradition term insurance policies are invested in central and state government securities, AAA rated bonds and debentures. So for those happy with 7-8 per cent returns with very little risk appetite, traditional policies work well, according to experts in the business.

“With the lifespan of people increasing over the years, the returns that you get on your investment are also important. The savings component of traditional policies is very less if you take into account inflation.

Ulips on the other hand provide an opportunity to park more money in equity and help get better returns,” asserts Akhila Srinivasan, managing director, Sriram Life Insurance.

The firm belief in the India growth story, the positive growth expected from the Indian stock markets over any five-year period and the Indian attitude of considering insurance as yet another investment class, would all ensure that the Ulip growth story is here to stay.