‘Customers now understand ULIP’s value proposition better’

With the bulls continuing to rule Dalal Street and stock market indices hitting record highs every other day, unit-linked insurance plans (ULIPs) are making a comeback in a big way.

Companies such as ICICI Prudential Life Insurance — a leading private life insurer — that kept their faith in ULIPs are now reaping the benefits of pursuing such a strategy. There is now a concerted attempt on the part of several private life insurers to sell ULIPs to individuals looking for protection and long-term savings. BusinessLine reached out to Sandeep Batra, Executive Director, ICICI Prudential Life Insurance, to discuss the market trend in ULIPs. Excerpts from an e-mail interaction:

Are there any indications to show that ULIPs have made a strong comeback?

The growing popularity of ULIPs is due to customers understanding the value proposition offered, juxtaposed with the overall positive economic sentiment. In our case, 96 per cent of our ULIP funds have outperformed their respective benchmarks, since inception.

What is the current mix between ULIPs and traditional products for I-Pru? How was the mix in 2007-08?

The new ULIPs are cost-effective as charges have been reduced. Given the prevailing market sentiments and an overall positive macro-economic environment, ULIPs have become popular with individuals looking for both protection and long-term savings. Our product mix has always been in favour of ULIPs, as of the first half of fiscal 2014-15 ULIPs comprised more than 80 per cent of our product mix.

Given that global and Indian stock markets are volatile, do you think ULIPs will be difficult to sell as a push product?

Firstly, ULIPs are long-term products. Volatility is an integral part of capital markets and can adversely impact returns where the investment horizon is short. However, historical evidence suggests that, over the long term volatility gets ironed out providing customers with positive returns.

The advantage of ULIPs is that a customer can opt for paying monthly premiums to take care of the issues relating to volatility. Over a long period, say 10 years, equity as an asset class is known for giving superior returns and ULIPs are an ideal way to invest in it over a longer period of time. Therefore, customers should continue with their unit-linked plans and regularly make premium payments during the tenure of the policy.

I-Pru’s charges are on the higher side compared to similar products offered by competitors. What is your take on this?

One should always evaluate the charges over the long term since life insurance is a long-term product. More importantly, ULIPs being offered today have been completely recalibrated and the cost structures have been rationalised. IRDA has specified a cap on the reduction in yield (RIY). RIY is the measure of the gap between what the customer’s funds earn and what the customer actually gets after deduction of charges. The lower the difference, the higher is the return to customers. Our current set of products have extremely low RIYs, in fact, for some products, it’s as low as 0.9 per cent for a 20-year term.

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