Term insurance plans see renewed interest

Unlike earlier days when term insurance policies were an important part of the business for life insurance companies, the segment saw a fall in consumer interest recently, when unit-linked insurance plans (Ulips) became more popular and remunerative. The term insurance segment is again seeing a renewed interest, according to industry members.

Term insurance policies are plans where the benefit is provided only on the demise of the insured. If the insurer survives the term of coverage, he has to forego the premium paid all along, unlike endowment policies, where a lumpsum is paid back to the insured on policy maturity.

Neither the regulatory body, the Insurance Regulatory and Development Authority (Irda), nor the insurance companies share details on the number of term insurance policies sold. Term insurance policies usually account for just about 5-10 per cent of the total policies sold by companies. But, there has been an increase in awareness and signs of growth in term insurance business of late, industry members said.

“There has been an increase in term policy sales, especially through the internet. Companies, which were selling not even 100 term policies per month, are now selling 1,000 policies, which is very good for the segment,” said P Nandagopal, chief executive officer, IDBI Federal Life Insurance.

With many companies, such as Aviva, Kotak Mahindra Old Mutual Life Insurance and Aegon Religare, launching term policies, which can be purchased online, there has been a lot of activity in the sector, industry members said.

Apart from online sales, an increase in group term plans, availed by banks to provide cover for their consumer loans and savings bank accounts, are also reasons for heightened activity in the segment, according to Nandagopal. Premium rates for term policies are also cheaper than endowment policies because there is no guarantee of the insured getting money back.

After September 2010, when Irda brought about sweeping changes in the rate structure of Ulips, the products, with lower commission, became less attractive for agents to push. Hence, Ulips, which earlier accounted for over 80 per cent of the sales for many insurers, comprises only 50-60 per cent of the sales for many players now. Hence, apart from other money-back policies, term policies have also benefitted from the Ulip crisis.

“After the Ulip crisis, there has certainly been an increase in awareness of insurance policies for protection and that has helped growth in the term insurance segment in the past few months,” says Mani Kant, vice-president,India Insure Risk Management and Brokerage Services.

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However, there are those in the business who believe that Ulips should purely be seen as an investment product, while term and endowment policies are for coverage and that there cannot be one segment influencing the other.

“From an investment perspective, investors looking for protection alone, would prefer term plans because they offer higher covers at lower costs. Investors, who want protection along with the flexibility to meet anticipated needs over the long term like child’s education, marriage, purchase of a new home and retirement, would opt for traditional or Ulips,” said Suresh Agarwal, executive vice-president, Kotak Mahindra Old Mutual Life Insurance.