Investors in India prefer to invest their money in unit-linked life insurance (ULIP) policies as the traditional endowment policy fails to protect their returns when inflation is high.
Investors have, in the last few years, found that the sum assured guaranteed on maturity had depreciated in real value because of the depreciation in the value of the rupee and as a result are taking new policies, which are linked to the performance of the stock markets. Within ULIP plans, investors are preferring equity investments which are capped. The other popular funds in ULIP are bond fund, protector fund, secure fund, growth fund and enhancer fund. Various studies by Insurance Regulatory and Development Authority also show that investors are no longer content with the security of the capital alone and are looking for higher returns and greater capital appreciation.
About 70% of the total life insurance products the industry sold in 2007-08 were ULIPs, indicating the popularity, which has grown from just 41.77% in 2005-06. Private insurance companies accounted for about 90% of the total ULIP schemes sold in 2007-08. The incentive for the private sector to sell ULIPs aggressively also comes from the fact that the agents get a hefty commission, to the tune of 40%, on selling ULIP plans to investors.
ULIP has also gained high acceptance due to certain attractive features like flexibility to choose the sum assured, flexibility to choose the premium amount, option to change level of premium even after the plan has started and convenience of tracking ones investment performance on a daily basis. ULIPs are also liquid as an investor can go for partial and systematic withdrawal and have low minimum tenure.
Though ULIP plans suffered some setback when the markets plunged to new lows, the recovery since June this year has once again restored investors confidence in ULIP plans. Also, the series of new regulations announced by the Securities and Exchange Board of India in the last few months has helped to regain investors confidence in ULIPs.