Life Insurance: Go Now for Participating Policies
Life insurance companies reported strong growth in non-participating or non-participating products as companies launched several guaranteed products at a time of falling interest rates.
Policyholders, too, preferred guaranteed products for savings, protection, pensions and annuities, as many saw their savings and earnings shrink due to job losses due to the pandemic. Furthermore, they did not want to compromise on non-negotiable life goals such as retirement or building a corpus for children’s education, especially during uncertain times.
Non-participating life insurance policies do not offer any bonus payments, but provide guaranteed benefits such as sum assured payable on the death of the policyholder, or maturity benefit payable when the plan matures. On the other hand, a participating life insurance policy pays both guaranteed profits and non-guaranteed bonuses based on the profits of the company to the policy holder after the maturity of the policy or to the nominee in case of death before the end of the policy term.
The share of non-performing products (Savings and Suraksha) in individual annual premium equivalent (APE) rose to 23% in FY12 from 18% in FY12, data from Insurance Regulatory and Development Authority of India (Irdai) showed. runs. Experts say that the rise in demand for non-par products was due to lower interest rates on fixed deposits by banks and innovative guaranteed products offered by insurers due to various hedging options.
Rakesh Goel, director, Probus Insurance Broker, says that although the demand for participating insurance products has always remained, with interest rates falling over the past two years, companies offering guaranteed products have increased the demand for non-participating products. Sales increased.
In fact, non-par savings were up 25-50% year-on-year State Bank Of India Life, HDFC Life and Bajaj Allianz Life. On a three-year CAGR basis, growth in non-par savings was 45% for HDFC Life, 66% for Max Life and 85% for Bajaj Allianz Life, shows a Kotak Institutional Equities analysis. “The share of non-equal savings equivalent to total annual premium has increased by about 10-20% over the past three years for most players,” said Kotak’s research note.
How do non-par products work?
Non-Para Guaranteed plans are preferred by those who want a sure and assured return on their savings, even if the returns are lower and the premiums are lower than the participating policies. Policyholders get the option to choose the guaranteed payout structure as per their evolving life goals. To ensure cash flow for non-negotiable life goals. However, before choosing a guaranteed return plan, customers should analyze the Internal Rate of Return (IRR) which is only 5- 6% per annum.
Participating Policies, One Option
Participating policy offers protection as well as returns in the form of bonus/dividend. The earned bonus or dividend is paid on an annual basis and the quantum of bonus depends on the performance of the insurer. Participatory insurance plans such as unit-linked insurance plans can ensure not only insurance cover to the policyholder, but also earn higher returns in the long run due to equity exposure.
What should policyholders do now?
Non-participating products are always beneficial in a low interest rate regime. Usually, insurance companies offer guaranteed products and the returns are higher than the prevailing interest rates. Goyal says that now with the prospect of a hike in interest rates, one can also look at participating policies. “If someone is looking at non-par products, they should wait for rates to peak because they can get higher returns,” he says.
Nayan Anand Goswami, head of group business and retail sales and service, Sana Insurance Brokers, said volatility in interest rates, volatile equity markets, rising inflation and delay in restoration of purchasing power affected the spending capacity of the middle-income consumer segment. Will be
“The right combination of guaranteed products and equity-linked products should be determined keeping these important factors in mind, especially at a time when the security of savings exceeds the emergent income,” he says.
see beyond guarantee
* Participating schemes like ULIPs provide insurance cover and high returns in the long run due to equity exposure
* Internal Rate of Return (IRR) on guaranteed plan (non-participating products) is only 5-6% per annum
* The share of non-par products (savings and security) in individual APEs increased to 23% in FY22 from 18% in FY20