Bima Nivesh Ii To Be Discontinued On Dec 15

The Life Insurance Corporation of India (LIC) will discontinue the sale of its largest selling product, the single premium risk cover Bima Nivesh II from December 15. This follows its inability to continue offering the existing guaranteed rate of interest in the future sale of the product.

Bima Nivesh II is currently offering between 8.4 and 9.5 per cent depending on the tenure of the policy varying between five to 10 years.

LIC's managing director A Ramamurthy said the revised Bima Nivesh product would be introduced once the public sector insurance major receives clearance from the Insurance Regulatory and Development Authority (Irda).

 

The proposed recast product was filed with the regulator two weeks back. Officials said the revised product would offer reduced returns by 100 to 150 basis points.

The maximum growth was in the sale of Bima Nivesh in the current fiscal. LIC sold over 77 lakh policies between April and October 15, 2001, mobilising a total first premium income of Rs 6,658 crore, indicating a growth of 299 per cent. Of this figure, Bima Nivesh helped the corporation mop up Rs 3,676 crore, individual assurances Rs 1,737 crore and individual pension plans Rs 1,245 crore.

The revision in the risk cover follows LIC's inability to pay the existing rate of return in a falling interest rate scenario. The company has also decided to scale down the returns on its pension plans such as Jeevan Suraksha, Jeevan Aksha and Jeevan Dhara where the assured returns are in the region of 10 to 11 per cent.

The downward revision in the interest rate here would be larger than that on a single premium policy. The officials said: "In the case of a single premium product, we can invest the money immediately. For other assured rate products, we need to be extra careful as we are dealing with future returns."

LIC chairman G N Bajpai had earlier said it had "become a great challenge for us to deliver satisfactory returns", with the interest rates having fallen by 300 basis points in the last 12 months. Returns on the 10-year government paper currently stands at 7.75 per cent as against July's rate of 9.3 per cent.

On July 23 LIC first recast its single premium product, which was till then offering a return of 10.5 per cent for a 10-year cover. The high returns were pegged on the yields on government paper at 11 to 11.25 per cent.

The rate of return for LIC has reduced by 100 basis points since half of its investment is in government securities and the balance in triple-A corporate paper, and partially in equity. Corporate paper of five-year maturity is quoting at 8.5 per cent.

The revised single premium cover will have identical features of the existing scheme, but will offer much lower guaranteed returns. The product offers a maximum cover of Rs 50 lakh, and includes a term assurance rider for twice the sum assured amount.