After the initial hesitation, some of the private sector life insurance companies are launching unit-linked pension plans, but only with a single premium option. While ICICI Prudential has recently launched its single premium unit-linked pension plan, despite getting approval last month, SBI Life has filed its single premium pension plan with the Insurance Regulatory and Development Authority (IRDA) and is awaiting approval.
LIC leads the pack
None of the private sector life insurance companies had launched unit-linked pension plans in the first round of product launches post the new ULIP guidelines came into effect from September 1. Life Insurance Corporation of India was the only company to have launched a regular premium ULIP pension plan on September 2. According to insurance company officials, in regular premium unit-linked pension plans, both the future interest rates and the future premiums are unknown, making it difficult to provide a guarantee. With single premium policies, at least the risk of future unknown premiums is eliminated. Mr Sanjiv Pujari, Appointed Actuary, SBI Life Insurance, said it is difficult to provide a guaranteed return over a long term. SBI Life's pension plan will be a single premium product open for a limited period. “We will close the plan after a few months and then probably reopen it again depending on our experience,” said Mr Pujari. In single premium plans, it is possible for insurers to invest in long-term securities in one shot to ensure the guarantee and invest the remaining in equities, said Mr Harsh Roongta, CEO, Apna Paisa, a Web site where insurance premiums can be compared. Insurance companies have to provide a guaranteed return of 4.5 per cent on the corpus of funds collected from pension plans launched after September 1. However, this rate is linked to the reverse repo rate and is subject to change. Industry players say that it is only possible for a company with LIC's financial strength to provide a guarantee over a long-term period as required in regular premium pension plans. LIC sold more than 30,000 policies of its unit-linked pension plan ‘Pension Plus' in around 45 days and collected Rs 150 crore in premium since its launch. That its plan was the lone product in the ULIP pension space for more than a month worked in its favour. “The ULIP pension space has been vacated by the private players at least for the time being. They will wait till they can make their ULIP pension plan attractive to their customers,” said an official with a private sector company.
“In single premium policies, there is no question of lapsation. Before the new regulations came into effect, lapsation used to be beneficial for insurance companies. This is not the case now,” said Mr Roongta. Mr Pujari said single premium products are attractive as they have not much seen many changes. “In regular premium products, premiums have come down drastically. This is not the case with single premium policies,” he said.