With cap on charges, ULPs replace low-ticket Ulips

Life insurance companies are pushing universal life polices (ULP) to fill the gap created by the retreat of small-ticket unit-linked insurance plans (Ulips).

After the regulator capped overall charges on Ulips, the minimum ticket size on these has almost doubled to Rs 10,000. The tenure has also gone up to at least 10 years. For instance, SBI Life has increased the minimum ticket size of its cheapest Ulip, Maha Anand-II, from Rs 6,000 (before the cap) to Rs 10,000. The tenure has been raised from five years to 10 years.

Reliance Life’s 25 per cent new business income came from its ULP, Traditional Reliance Super Invest Assure Plan, in December and January. Similarly, Secure Dreams of Max New York Life accounts for 10 per cent of the new business income. While the minimum ticket size of Reliance Life’s ULP is Rs 5,000, the average premium under the policy is Rs 8,000.

“With Ulips moving to higher ticket sizes, the low-ticket-size segment was vacant,” said Reliance Life President Malay Ghosh.

“Finally, traditional policies and ULPs will replace low-ticket-size Ulips,” said Bharti Axa Life Insurance’s Chief Financial Officer V Srinivasan.

The Insurance Regulatory and Development Authority has capped the difference between gross and net yields at 3 per cent for polices of less than 10 years and 2.25 per cent for policies with tenures of above 10 years. The cap was effective from October 2009 for new policies and from January for existing ones.

At present, three life insurance companies are selling ULPs: Reliance Life, Bharti Axa Life and Max New York Life Insurance. While Bharti Axa Life and Max New York Life are selling ULPs in the form of micro insurance, with a lot of low ticket sizes, these products do not account for large part of their portfolio.

Under ULP, customers have the flexibility to choose the premium, the sum assured as well as the tenure. The policy is not cancelled even if the customer fails to pay the premium. It ensures that premiums paid are sufficient to meet the policy requirements till then.

The ticket size range of Bharti Axa’s ULP is Rs 99-6,000. Under Max New York Life’s scheme, customers have to pay a minimum premium of Rs 15,000. ULPs follow the investment guidelines of traditional plans, where customers do not have the transparency that Ulips provide.