Life Insurance Corporation of India (LIC) and other players have always shown a higher preference towards Unit-linked insurance plans or ULIPs over the traditional plans. ULIPs have been comparatively easy to sell and constituted nearly 60% of the overall business of life insurance companies, while traditional plans formed only 40% of their business.
Simply put, ULIPs offer goal-based investment opportunity combined with the safety net of life insurance. The investment is done according to the risk profile of the customer and the risk of investment is borne by the customer as the returns are linked to the markets. Traditional plans offer in-built guarantees and define maturity benefits through variety of products such as guaranteed maturity value. As opposed to a ULIP, the investment risk in a traditional plan is borne by the life insurance company. Traditional plans are the oldest types of insurance plans and cater to customers with a low risk appetite.
According to LIC Chairman, DK Mehrotra, over the last 2 years, LIC has shifted its focus from ULIPs to traditional plans. The Chairman of the country’s largest insurer stated that earlier the ratio of ULIP and traditional plans was 60:40, which has now reversed.
LIC was the first insurer to introduce a ULIP product – Bima Plus however they did not start pushing it until the entry of private life insurance companies in the Indian markets.
DK Mehrotra also added that it is better to go back to traditional products as it ensures long-term business.
ULIP business of life insurance companies also took a back seat after Insurance Regulatory and Development Authority (IRDA) came up with stringent guidelines on ULIP products; cutting down agent commissions, increasing the lock-in period etc. There are 22 private insurance companies in India, and the new ULIP regulations affected sales of these players as well as LIC.
