Traditional insurance plans saw higher growth in premium than Ulips in FY18

Even as the stock markets rose in 2016-17 (the Sensex was up 17 per cent over this period), insurance policyholders remained conservative and continued to prefer traditional plans over unit-linked insurance plans (Ulips), which can offer you a significant equity exposure. According to the Insurance Regulatory and Development Authority of India’s (Irdai’s) Annual Report 2016-17, the premium gathered by traditional products rose 14.24 per cent in 2016-17 over the previous year. In comparison, Ulip premiums rose only 12.70 per cent over the same period.


Experts say the decline in interest rates in 2016-17 made traditional plans more attractive. “Traditional plans gained favour because interest rates went down. Earlier, there was a difference between the internal rate of return (IRR) of traditional plans and banks’ fixed deposits (FDs). But FD rates declining in the last financial year helped traditional plans,” says Santosh Agarwal, head of life insurance at Irdai's annual report shows that the premium gathered by traditional plans rose from Rs 3 200.54 billion in 2015-16 to Rs 3,656.31 billion in 2016-17. As against this, Ulip premiums rose from Rs 468.90 billion in 2015-16 to Rs 528.45 billion in 2016-17.


Financial planners, however, say the faster growth in sales of traditional plans may also be because they offer higher commissions than Ulips, and hence agents push them more. Ulip costs were pared by the regulator in 2010. According to Suresh Sadagopan, founder, Ladder7 Financial Advisors, “In the recent past, selling Ulips has become more difficult because there is still a lot of negative sentiment attached to Ulips. So many insurers have switched to pushing traditional policies more. The commission structure is also a factor. In an endowment plan, the agent gets an upfront commission of 35 per cent, so there is a natural incentive for him to push such products.”


According to the Annual Report, while the life insurance industry's overall claim settlement ratio has increased, the Life Insurance Corporation of India (LIC) continues to do better on this count than private life insurers. For private life insurers, the claim settlement ratio stood at 93.72 per cent, while for LIC it stood at 98.31 per cent. Claim repudiation typically takes place in the initial years of the policy. Private insurers are over a decade old, while LIC has been around for a much longer time, so naturally claim repudiation for private players is higher. Says R M Vishakha, managing director and chief executive officer, IndiaFirst Life Insurance Company: “In our company we do need-based selling. We sell what the policyholder requires. There is no bias towards any product. As for claim settlement, our philosophy is to ensure that no genuine claim is repudiated and no fraudulent claim is paid. We believe that every wrong claim paid is a loss to genuine customers. In keeping with this principle, we scrutinise all claims well and pay them quickly.”


The claim settlement ratio nonetheless remains an important factor when choosing an insurer. Also, check out the time that the player takes to pay claims before you decide to invest with one and disclose your health condition accurately at the time of purchase to avoid the risk of your claim being turned down.


Before buying an insurance policy, get a proper need evaluation done and buy a policy that suits your requirement. By offering the option to invest a high proportion of your funds in equities, Ulips are better suited for wealth accumulation. Traditional plans may be more suited for conservative buyers. Ulips score on liquidity: After five years you can withdraw your money without any charges, while in a traditional plan there will be surrender charges and you will have to bear it unless you hold it to maturity. Besides these two products, also explore the option of buying a mix of term insurance and mutual funds to meet your insurance and investment needs.

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