LIC eyes more income from regular products

Life Insurance Corporation of India (LIC) has set a target of increasing the share of new business premium from traditional products to generate resources for investments in longer-term infrastructure projects and government bonds.

The public sector life insurer has drawn up a plan to increase the share of new business premium income from traditional insurance products to 35 per cent in 2007-08 from 20 per cent in 2006-07.

The popularity of unit-linked insurance plans (Ulips) unexpectedly pushed up the growth of LIC's new premium income to over 100 per cent in 2006-07.

LIC's needs for long-term funds cannot be met from Ulips, as individuals prefer to invest most of their funds in equities.

D K Mehrotra, managing director, LIC, said, "Ulips continue to be the flavour of the season because of their transparent features and high returns. The insurer also benefits because the risk premium is borne by the policyholder. However, Ulips don't fulfil risk coverage and provide resources to invest in long-term infrastructure projects, social infrastructure, bonds and government securities. We will keep a conscious thrust towards conventional products."

When asked what is the ratio they are aiming for, Mehrotra said, "We are aiming at a proper mix of Ulips:traditional at 65:35."

In the month of May, LIC launched Jeevan Amrit Plan, an endowment plan with a policy term of 10 to 30 years. The plan is flexible where the premium payment term is limited to three, four or five years.

Also the premium amount comes down from the second year onwards. The bonus is paid based on the premium paid and not on the sum assured.

The first year premium income in 2006-07 from Ulips was Rs 31,556.80 crore, which constituted 79.81 per cent of the total new business premium.

For the same period, non-linked business was Rs 7,984.77 crore. "We plan to launch three-four products this year. The endowment plan that we plan to launch will offer flexibility in terms of premium payment and several other benefits."

"The conventional product will be for the working class focussing on their liabilities. It will not be an annuity product. The product will be a simple conventional endowment plan with maturity or a death proceeds," he said.

Endowment plans are life insurance plans which not only cover the individual's life in case of an eventuality but also offer a maturity value at the end of the term.

In the event of the individual's demise, his nominees receive the sum assured with accumulated profits on investments. In case the individual survives the tenure, he receives the sum assured and accumulated profits on investments.