The surging Sensex in last three months after plunging below 8,000 last year may not be an entirely positive experience for life insurers, who depend for growth of their business upon the sale of unit-linked insurance plans (Ulip) that is a life insurance solution, providing benefits of risk protection and flexibility in investment. What single outs Ulip is the fact that the three-year lock-in period that insurance regulator Irda had put in place for redemption in 2006 comes to an end this June.
Policyholders who had bought a Ulip product three years ago can now exit and the recent stock market performance may be an incentive for them to do so. Analysts point that Irda had to put a three-year lock-in period for the Ulip products as insurers initially sold these products as a short-term investment products when the Sensex was scaling new heights starting from 2005.
?Nobody would have exited their Ulip portfolio when the Sensex had fallen below 10,000. Now that it as shot up above 14,000 we are expecting redemption by the policy holders,? said a top official of Life Insurance Corporation (LIC).
Almost 80% of Ulips are pure equity-linked products.
TS Vijayan, chairman, LIC, however, added, ?Yes, the redemption of the Ulip policies will begin soon. But, I don?t see any kind of pressure on us?. A similar sentiment was expressed by US Roy, managing director & CEO, SBI Life who said, ?The three year lock-in period of the Ulip products as sold by us three years ago, is ending this month. But we are not feeling any redemption pressure and we have not got too many queries about redeeming of the products.
The regular investors have preferred to stay invested, whereas the speculators may either decide to exit or to stay?.
In the case of SBI Life, Ulip comprises 65% of the entire product portfolio and equity-linked products comprise 80% of the Ulip products.
Leena Dhankher Joshi, assistant vice president, Tata AIG Life Insurance is of the view that the stock market improvement is indeed a welcome situation for Ulip sales from the point of view of the company as well as the industry. ?For the customers who wish to avail of the profit growth during the course of the policy term, we have a feature of partial withdrawals?.
Vikram Kotak, chief investment officer, Birla Sun Life Insurance said, ?Redemptions may continue its long-term trend of less than 10%.?
Withdrawal symptoms
•Irda had to put a three-year lock in for Ulips as they were sold as short-term products
•10% redemptions expected after the three-year lock in period
•Speculators are likely to exit Ulips
•Today, 80% of Ulips investments are in pure equity funds
•If the stock market performs, the value of Ulips will increase