New Delhi: Most unit-linked insurance plans, or Ulips, which provide life cover that varies according to the value of their underlying assets, have fared better than the broader stock market as well as equity mutual funds in the past year of financial turmoil.
A Mint analysis of 10 Ulips offered by seven life insurers shows they declined by an average 31% in the year to 30 January. That compares with a 46% drop in the benchmark Sensex index of the Bombay Stock Exchange (BSE) in the same period. On Monday, the BSE Sensex fell 357 points to close at 9,066.
Equity diversified mutual funds fell 50% during the year to 30 January, according to Delhi-based mutual funds tracker Value Research data.
A five-year bull rally on the BSE ended last year with the Sensex posting its biggest decline on record by falling 52%.
“Ulips have balanced asset classification. Moreover, the Sensex is not the representative of the market unless products are mostly invested in the Sensex stocks,” said P. Nandagopal, chief executive of Reliance Life Insurance Co. Ltd, explaining why Ulips did better.
Ulips of Life Insurance Corp. of India, or LIC, the country’s biggest insurer, have fallen the least. LIC’s Future Plus, Money Plus and Market Plus have fallen by 13%, 28% and 24%, respectively.
There’s a catch to Ulips, however. Ulips have a higher expense ratio than mutual funds.
While in Ulips, around 60-70% of the premium collected in the first year is deducted to meet expenses such as mortality and commission charges, in the case of mutual funds only 1-2.5% is deducted. This means that out of every Rs100 paid as a premium for Ulips, only Rs30-40 is invested in an insurance policy and the rest deducted as charges.
“Insurance policies are not easy to sell. Customers have to be convinced to buy a policy and therefore commission rates are high for insurance policies than other products,” said S.B. Mathur, secretary general of the Life Insurance Council, an industry umbrella body. “Insurance companies are long-term players and, therefore, have performed better than other players.”
Insurance Regulatory and Development Authority data show there has been a fall in the sales of Ulips in past couple of months, reflecting the downturn in the stock markets.
In November, total sales of insurance policies, including Ulips, fell by 18% compared with the corresponding month a year earlier. The growth rate in April-November sales also eased last year to 1.4%, compared with 10% during the same period in 2007.