Rush to sell Ulips ahead of July 1

NEW DELHI: Insurance companies are in a rush to sell as many unit-linked plans as possible before the new guidelines force them to bundle a life or health cover with these popular instruments that account for nearly half of their business.

Insurance executives feel selling these policies will be difficult once the new guidelines proposed by insurance regulator IRDA are introduced from July 1. Once the new norms are in force, agents will have to convince the customer to buy a health or insurance cover along with pension plans.

“It was an easy product to sell since you don’t have to ask the customer too many questions,” said the sales head at a leading insurance firm.

Some of the insurance companies and banks have revised sales targets and initiated incentive schemes such as foreign trips, easy loans and discounts to drive sales. Unit linked plans constitute 46% of the total business of insurance companies.

Pension products have been the favourite unit-linked products, as insurance cover was not mandatory with the policy. These were sold as an investment product wherein customer was currently given the option to surrender his policy after a 5-year lock in.

“Given this flexibility, it was easy for a customer as old as 70-years to invest in such plans. Besides the commission from selling a pension plan was more than that of other products,” said a relationship manager with a leading private sector bank.

Traditionally, all unit-linked plans are frontloaded and an agent can earn a commission up to 20% by selling such policies.

“This (the new norms) will require more documentation and if the amount is high then an income proof will also be required, which will deter customers,” said a sales head at an insurance firm.

As per existing laws, the insurance cover should be five times more than the premium paid.

Further, the new law will also restrict the customer from surrendering their pension plans, as they will not get the full amount on surrendering their policy. The customers will only get one-third of the invested corpus and the rest amount through annuity or monthly/yearly payments.
Ashish Kapur, CEO of Invest Shopee, feels the new laws will aid the investor from unnecessary buying an insurance product. “There was a lot of mis-selling earlier,” he said.

Of the Rs 2,00,000 crore-plus life insurance premium collected in the first 11 months of 2009-10, more than Rs 91,000 crore came from Ulips, according to the Life Insurance Council of India, an industry body representing 23 life insurers.