Companies push high-value policies

Life insurers are pushing big-ticket insurance policies not just to meet the year-end rush, but also to take advantage of the last few days remaining before Insurance Regulatory & Development Authority’s (Irda) new guidelines on unit-linked insurance plans (Ulips) come into force.

According to the revised norms, which were issued two weeks ago, the premium in the second and the third years have to be at least 75 per cent of the premium paid when an Ulip is purchased. In case the premium was lower than 75 per cent, insurance companies cannot pay commission to their agents.

What has also added to the rush is the fall in the sale of big-ticket, single-premium covers and Ulips in the current financial year as individuals are holding on to big-ticket purchases, especially where the returns are linked to the equity markets. For insurers, big-ticket policies mean lower lapse rate and it translates into higher commission for agents.

“These policies do not lapse very easily, we send our agents with proper inputs to high net-worth individuals. If it is a regular plan, premium comes in even in the next few years. These people hardly default in premium payment,” said Life Insurance Corporation of India (LIC) Managing Director D K Mehrotra.

But companies said that there was higher appetite for big-ticket term plans, or the traditional covers where the premium is paid over a period of 15-20 years. While a part of the reason is insuring potential risks, increasing awareness is also helping insurance companies.

According to industry estimates, the average size of the term covers has increased to Rs 15-20 lakh in 2008-09 from Rs 3-5 lakh in 2005-06. For new entrants such as Aegon Religare, the business is split into 25:75 from term and unit linked plans (Ulips). For most insurers till last year, about 80-85 per cent of the sales came from Ulips.

“So far, the number of high value policies sale may have fallen but industry has seen a rise of 15-20 per cent in the value of sum assured,” said Max New York Life Executive Vice President Prashant Tripathy.

“People continue to reduce their exposure to equity market. Off-late customers have realised the need for decent and cheap cover available under term plans. Since premium in term plan is linked only to mortality, it becomes the cheapest,” said Aegon Religare CEO Rajiv Jamkhedkar.