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| New Ulip rule to reduce insurers' income |
| BS Reporter / Mumbai May 21, 2010, 00:14 IST |
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Life insurance companies anticipate a fall in premium collected through unit-linked pension products. This is due to the Insurance Regulatory and Development Authority (Irda) making life cover compulsory with pension plans.
The changes apply from July 1. At present, life cover is optional with unit-linked pension plans. At present, pension products account for 25 per cent income from new business for the industry.
“Pension is mainly a savings instrument. Bundling it with life cover is not a very good idea. This will take away the charm of the product. We expect our share from pension plans to dip significantly, from 55 per cent to 25-30 per cent,” said a senior executive of Star Union Daiichi Life Insurance.
For another new entrant, IndiaFirst Life, pension products contribute a third to total income. “The recent changes will impact sales of pension products. They will come down,” said managing director and CEO P Nandagopal.
“Bundling the two products is not a good idea. Pension products have lost their sheen. There will not be any advantage of buying a unit-linked pension plan. We see a fall in income from pension plans,” said Sanjeev Pujari, SBI Life’s Chief Actuary. The share of pensions in the overall premium collection for SBI Life is 10-15 per cent.
In addition, Irda has banned partial withdrawal for pension products. Insurers can convert the accumulated fund value into an annuity only at maturity. However, the insured has the option to convert up to one-third of the accumulated value into a lump sum at the time of maturity. In a surrender, only up to a maximum of one-third of the surrender value could be availed in a lump sum and the remaining amount has to be used to purchase an annuity.
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