New investors appear to be switching away from unit-linked life insurance plans
(Ulips) to conventional products due to the uncertain returns from the stock markets.
A senior official of the Life Insurance Corporation of India (LIC) told MAIL TODAY that given the current volatility in the stock market, as many as 80 per cent of the new investors are opting for the public sector company's conventional products.
LIC's Jeevan Saral accounts for 30 per cent of the total insurance products sold, while Jeevan Anand, also a conventional product, has a 25 per cent market share.
Investors buying Ulips
appear to be getting a raw deal. Although the returns on these products are subject to stock market risk, gullible investors tend to lose sight of this crucial fact when insurance agents launch their hard-sell.MUST READ: Things to keep in mind before buying Ulips
M.K. Kutty is a typical example. The retired private sector executive invested Rs 3 lakh over a period of three years in a ULIP of Kotak Life Insurance with a lock-in period of five years. When he opted out of the scheme recently after a period of three years, he found to his horror that the company returned him only Rs 2,81,709.
Enquiries with the company revealed that the loss had occurred due to fluctuations in the stock market. Kotak executives then asked Kutty to invest the money in a "better" scheme that they were now offering but he decided to stay away.
Kotak Life did not respond to a call asking for more details about the case.MUST READ: How to find that perfect insurance cover for yourself
According to senior LIC executives, a conventional insurance product that is not linked to investments in the stock market gives a return of six to eight per cent a year.
If the Rs 3 lakh had been invested in a conventional policy, the amount would have gone up by Rs 36,000-48,000, instead of declining in value.
In the case of Ulip schemes, insurance firms also charge an administrative fee and follow it up with monthly charges for administrative expenses, which are deducted from the investor's account. If the policy is surrendered before the lock-in period another three per cent is deducted by the company.
According to industry sources, the charges of private sector insurance firms are higher as they have to cover up for their higher operating costs.
The average salary of a middle-rung LIC official ranges from Rs 5-6 lakh a year, while salaries of their counterparts in private sector insurance firms is around Rs 15-20 lakh.Courtesy: Mail Today