In September, last year, Insurance Regulatory and Development Authority (IRDA) completely revamped Unit-linked insurance products (ULIPs) that were being sold by all the life insurance companies. A ULIP is a life insurance plan, which offers the benefits of protection as well as savings. The savings component is a portion of the premium paid by the policyholder that is invested by the insurance company in a fund.
Prior to the new guidelines, ULIPs constituted more than 60% of life insurers’ business. During 2010-2011, the proportion of sales of ULIPs declined by 15% as compared to that in the previous year. The new amendments aimed at introducing more customer-friendly ULIPS and increasing transparency. Insurance agents were severely affected by this due to a reduction in their commission costs. The industry saw a decline in ULIP sales as these agents shifted their focus to more traditional products.
Amidst all this, the number of ULIP plans being sold with riders increased from 5% to 20%. Riders are add-on covers like accidental death benefit rider, accidental death and dismemberment rider, critical illness rider, family income benefit rider, term rider, waiver of premium rider, etc. Insurance agents get an additional source of income by selling such add-on covers on ULIPs.
Post-September, insurance companies have seen an increase in the demand for insurance policies with riders. Kotak Life Insurance Company managed to sell 70,000 riders during 2010-2011 as compared to only 20,000 riders in 2009-2010.
By adding riders to insurance plans, the agents stand to earn over 20% in commissions. At the same time, policyholders stand to get extra benefits by shelling out a small sum of money. Riders are a win-win situation for the insurance company, the policyholder as well as the intermediary agent. Agents and insurance companies increase their earnings while the customer gets higher protection and benefits.