The spurt in sale of unit-linked insurance policies (Ulips) after foreign insurers entered the market in 2001 has strengthened the perception that for accumulating fund for long-term needs such as higher education for children or their marriage insurance policies provide attractive options.
Research conducted in India and in the developed market has revealed that purchase of a life insurance policy is dependent mostly on milestone events in one’s life. People decide to buy life insurance when they get a job or when they get married or even when a couple gets the first or the
second child. Such events in life generate a unique sense of responsibility and people look for instruments of protection for their loved ones. Such sales normally account for around 55% of total policy sales by the life insurers. The remaining sales, however, is motivated or triggered by factors other than the need to provide financial security to the family. The most dominant among such factors is the motivation to choose life insurance for saving for the future.
Traditionally, the sellers of life insurance have been promoting their products as the finest instrument for systematic and long-term saving. The market has also accepted the endowment and money back type policies as a safe and a relatively compulsory saving instrument. The perception of more than 40% of the policyholders has been substantially removed from the core function of life insurance as a financial instrument
Spurt in sale of Ulips
The spurt in sale of unit-linked insurance policies (Ulips) after foreign insurers entered the market in 2001 has strengthened the perception that for accumulating fund for long-term needs such as higher education for children or their marriage insurance policies provide attractive options. Many people have purchased and many are still purchasing Ulips plans on a very large scale. The handsome growth of annualised equivalent premium for the current financial year by the life insurers has been driven mostly by Ulips. Even LIC has achieved Rs 99,783 crore of new business premium in FY18 (till December 2017) with the largest contribution coming from Ulips and that too, through single premium mode.
Recently, a friend called me to find out how the insurance company had paid him maturity amount of just Rs 48,000 for a single premium of Rs 40,000 ULIP taken eight years ago. The salesman had assured him of 100% growth in the fund value. I tried to rationalise the lower return due to yearly cancellation of certain amount of units for mortality charges and fund management charges by the insurer. But he was not convinced and regretted his decision to buy Ulip. It’s a classic example of mismatch between one’s needs, age and expectations from a life insurance policy.
Not much of thought was involved in the buying process which resulted in setback to my friend’s financial planning. The lesson is that one must spend time to understand the terms and conditions of the plans and then sign the proposal form.
Last quarter sales
During the last quarter of a financial year, the financial world woos potential customers desperate to save for income tax benefits under Section 80C. Traditionally, insurance has been on the forefront for such investments. Agents step up their market mobility and succeed in selling almost
55% of their yearly productivity in the last 90 days. Customers buy insurance policies in haste and regret later. Life insurance is not bought every year and life insurance binds the policyholder to a fairly long-term contract from which exit is either not possible or is possible with heavy cost. Customers must spend some time to understand the features of the products being offered and then decide regarding the plan, sum assured and mode of payment.
Life insurance is not a plain-vanilla product. It provides for variety of options regarding benefits and also add-on value through rider benefits. Once a policy is issued rider benefits may not be included later on. Hence decision regarding riders must be taken at the time of signing the proposal. Mostly the terms agreed upon on the basis of declarations in the proposal form are irreversible in the contract of life insurance. Those who are pushed by circumstances or by ignorance to the year-end selling and saving pressure must avoid haste if they decide to go for a life insurance product for their family’s long-term benefit.
The writer is former MD & CEO, SUD Life, an Indo-Japanese JV