Short-term premium paying insurance products seem to be gaining favour in the Indian life insurance market. With the booming Indian economy, an increasing number of people are looking at insurance as an instrument to cash in quick returns. | |
| The Life Insurance Corporation of India (LIC) recently scrapped its Money Plus unit-linked plan (ULIP). One of the main reasons was the feedback that most people do not want their "financial obligations to stretch for a long period of time". In its place, the life insurance giant will introduce Fortune Plus on August 23 this year. |
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| Fortune Plus, incorporates almost the same features as Money Plus, but offers more flexibility on premium paying terms. "People want to be done with their financial obligations as soon as possible," LIC officials said. |
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| The premium paying period for Fortune Plus is fixed at five years and is the only option available to the customers, who are required to pay a minimum first year premium of Rs 20,000. The annual premium for subsequent years is 25 per cent of the first year premium and cannot be extended beyond. |
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| Money Plus, on the other hand, required the customers to pay a minimum annual premium of Rs 5,000 and the minimum premium paying term was three years, but the customers had the option of choosing a higher term. |
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| "Many people do not view insurance only as a risk covering instrument, but also see it as an investment opportunity. Most people do not want to lock in their money for longer terms. So, short-term premium paying insurance products, typically ranging from three to five years, are preferred by many," an LIC official explained. |
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| Another reason which attracts the customers to short-term premium paying policies is that many are unsure of their earnings potential in the longer run. Many prefer to take up life insurance policies that require short-term premium paying commitments as they are equated to "lesser financial burdens", according to the LIC official. |
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| The official said that the average premium-paying term of LIC customers buying traditional policies is around 15-20 years. As far as ULIPs are concerned, it is difficult to adhere to the average premium paying term as customers have the option of exiting their policies after the end of the lock-in period. |
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| Agreeing that many customers prefer short-term premium paying policies, a private life insurance company official said that people expect immediate returns from their policies. |
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| Indians have a myopic view of life insurance, with many buying insurance policies either for income tax breaks or to get higher returns on their investments. |
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| "This could be attributed to the lack of expertise on the part of agents (or advisors), who try to convey that life insurance products help in providing the same rate of returns as other investment instruments. But, it is very important for the customer to understand that insurance is not an instrument for fast returns, but primarily provides life cover," the official added. |
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| Such preference for quick bucks is not good for either the customers or the industry, Debashis Sarkar, director, additional distribution and marketing, Max New York Life Insurance Company, said. |
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| "Maybe, the customers go in for such policies because of a combination of the market boom and unit-linked policies. Insurance is basically meant to meet long-term objectives. If markets fall flat in the initial years of the policy, customers would lose a major chunk of their funds due to deductions on mortality and administration charges." Sarkar explained. |
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| An SBI Life official said that efforts have to be made by the life insurance providers to educate customers about the long-term benefits of a life insurance policy. This calls for effective training of advisors or agents. |
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