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Limited premium policies have become one of the best-selling products of the life insurance sector. With single premium plans fading out in the retail segment, limited premium plans have been able to help life insurers sustain their growth in the non-single premium segment.
In limited premium plans, customers pay the premium for a shorter span of time for a longer period of insurance cover.
Anup Rau, CEO, Reliance Life Insurance, said, “This plan is very useful for those people who prefer to be relieved from the commitment of paying insurance premiums for a longer duration. Insurance companies also enjoy higher persistency levels if the limited premium paying product is suitable to the long-term financial goals of the policyholder.” Reliance Life has eight existing products, including five as traditional plans and three as unit-linked plans (Ulips).
For the past few years, limited premium products have been able to gain significant market share in India. Although its market share was 5-10 per cent in the initial phases, life insurers said its market share had increased to 15-20 per cent in the past few quarters.
That single premium products became unattractive due to lower tax benefits also contributed to the popularity of limited premium products.
The last Budget (2012-13) had proposed that a life insurance policy would be eligible for tax benefits only if the sum assured was at least 10 times the annual premium. This, too, impacted single-premium products, as the sum assured on death is less than 10 times the single premium in these products.
According to Rau, Reliance Life is looking to file most of the insurance products with limited premium payment options.
“We believe that this will certainly help increase the persistency levels.”
Munish Sharda, director (direct sales force), Aviva India, explained that limited premium paying plans are ideal for customers who are not looking for a long-term liability, but want insurance benefits to continue.
According to him, there has been significant growth in these plans, as most customers have a limited horizon for investment and require funds for specific needs like increase in children’s school or tuition fees or any other financial requirement at regular intervals.
Limited premiums are advantageous as they are purely dependent on a customer’s cash flow, said P Nandagopal, managing director and CEO, IndiaFirst Life Insurance.
While sometimes there would be high lapses due to mis-selling; limited premium plans have a higher customer appeal, he added.
While yield-to-maturity does not vary much between limited premium and single premium, the total premiums paid towards a limited pay policy can be higher than that of a single premium policy, leading to a higher maturity value.
Also, with a limited premium plan, a customer can link his change in income to the premium payment and can plan relatively bigger saving and sum assured as compared with a single premium plan, said Rau. “Furthermore, the tax benefit is limited to one year. Riders, too, are generally unavailable under single premium plans. However, they can be purchased under regular or limited premium plans.”
Non-single premium income of life insurers has seen an 8.1 per cent rise for the April-December period in the retail segment. While this means good news for the life insurance industry, which is seeing an overall dip of 3.8 per cent in new business premiums for the same period, single premium is seeing a decline of 6.4 per cent. According to data from Insurance Regulatory and Development Authority (Irda), single premium for the individual segment fell to Rs 10,518.48 crore for the period, compared to Rs 11,238.48 crore in the same period in the last financial year. The new business premiums for non-single segment rose to Rs 30,169.57 crore, compared to Rs 27,892.84 crore in the last financial year.
