Single-premium life insurance policies find favour with investors

Single-premium life insurance policies find favour with investors
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First Published: Wed, Mar 25 2009. 12 43 AM IST
Updated: Wed, Mar 25 2009. 12 43 AM IST
New Delhi: The response for two new policies from Life Insurance Corp. of India Ltd (LIC) shows that investors are shying away from buying life cover that requires long-term financial commitment, opting instead for those that require paying premium just once.
This is despite the fact that a so-called single-premium policy requires a much higher payment compared with products that require paying smaller premiums spread across several years.
LIC’s Jeevan Varsha policy, a money-back plan that pays out lump sum at periodic intervals and assures a minimum return after nine or 12 years, has managed to collect only Rs132 crore in 35 days in first premiums. The policy closes on 31 March and has managed to sell 150,000 policies as on 23 March.
On the other hand, India’s largest life insurer’s Jeevan Aastha policy, a single-premium product with similar guaranteed returns, garnered Rs10,235 crore in 45 days. It closed on 21 January after more than 1.8 million policies were sold.
“Customers are not willing to promise payment over 9-12 years,” said Chandan Gavai, operations chief of a Nagpur-based wealth management company. “They were more comfortable with Jeevan Aastha because it was a single-payment policy with no future commitments.” Gavai declined to identify his company, saying these views were his own.
The less-than-expected response to Jeevan Varsha comes at a time when large numbers of taxpayers buy insurance cover to avail of income-tax benefits.
People buying life cover has fallen in the recent past on the back of an economic slowdown.
In the first 10 months of the current fiscal year that started on 1 April, LIC’s first-year premium collections fell by 30% to Rs12,631 crore, compared with 1.07% growth a year ago. The data doesn’t include single-premium policies.
An LIC official, however, said: “Jeevan Varsha has collected Rs132 crore so far. But considering that it’s a non-single plan and renewals will keep flowing in for the company, the policy has done well.”
Mint had reported on 20 March that new business premiums and policy renewals are declining as the economy grows at a slower pace after expanding an average 8.9% in the past four years. Economic growth is forecast to drop to 7.1% in the fiscal year ending 31 March, the slowest pace in six years.
“To cover the Ulips (unit-linked insurance plans) setback, conventional policies are gearing up,” the official said on condition of anonymity, because he is not authorized to speak with the media.
The demand for Ulips, which provide life cover and invest part of the premium in equities, has slumped after an almost five-year stock-market rally ended last year, with the Bombay Stock Exchange’s benchmark Sensex index diving 37% in the past one year.
“Earlier Ulips accounted for 60-70% of the total portfolio. Now the share has been reduced to 50%. Traditional policies are flavour of the season and their share is growing in the portfolio,” the official said.
Life insurers together collected Rs32,799 crore in first-year premiums during the 10 months to 31 January, a fall of 9.36% from a year earlier, when they saw a 35% increase in fresh business, according to the Insurance Regulatory Authority of India.
This behaviour, however, is not limited to buying insurance, but also to stocks and bonds.
“Investors are cautious because of the uncertainty prevailing in the market. On selective basis, they are looking at long-term investments,” said Ritesh Jain, head of fixed income at Morgan Stanley Investment Management.
“People are shying away from investing for a long period considering the slowdown in the stock markets. Our trading volumes have not dropped compared with what it was a year ago, but they are more in a day-to-day trading currently,” said Gajendra Nagpal, chief executive of Unicon Financial Intermediaries Pvt. Ltd.
The highest sum LIC collected in a money-back policy was for Bima Gold in 2005-06, which garnered a huge Rs2,600 crore over seven months and sold 10 million policies.
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First Published: Wed, Mar 25 2009. 12 43 AM IST
More Topics: Life Insurance | LIC | Ulips | Investors | Premium |