Single premium plans rebound

Behemoth LIC's share of single premium policies falls to less than 40 per cent

Single premium insurance policies have made a strong comeback, even as the Union budget has made maturity proceeds taxable and withdrawn section 88 benefit for these schemes.

Latest industry figures released show that the life insurance industry have sold well in excess of 20,000 individual single premium policies, mopping up over Rs 109 crore in premium income in the first four months of fiscal 2004.

Much of the growth in terms of number of policies sold comes on the back of sale of retail loans, said SBI Life Insurance Company appointed actuary and chief financial officer R Kannan.

"Many individuals are buying credit protection products or pure term policies to protect their personal loans (home loans, car loans, etc). These covers fall outside the 20 per cent tax exemption rule since there is no maturity value, and the insurance benefit only comes into effect on the death of the borrower" he added.

The Union budget announced that policyholders paying premia in excess of 20 per cent of the sum assured will henceforth not enjoy tax rebate under section 88.

They will equally not be eligible for tax free returns under section 10(10D) of the Income Tax Act, unless in the case of death of the policyholder.

Thirty per cent of SBI Life's individual sales this year have been term insurance covers. A majority of State Bank of India's home loans are being sold with term protection cover, said company sources.

With low credit offtake by industrialists, banks have taken to funding retail loans in a large way. In their role as a corporate agent of insurance companies, banks are cross-selling risk products to their home loans and car loan customers.

This has resulted in the growing sale of term loan products, intended to protect the family in the unfortunate death of the borrower.

Deepak Satwalekar, managing director and chief financial officer of HDFC Standard Life Insurance Company, differs on this view, stating: "Even today single premium plan is a far superior product than other financial instruments in the market, looking at the returns."

In addition to offering higher returns as compared to bank deposits, single premium plans have an embedded life cover, he added.

Over two-third of HDFC Standard Life sale of individual single premium plans are accounted for by whole life covers, with one-third being on account of pure term plans.

HDFC Standard Life mopped up the second highest premium through the sale of single premium plans at Rs 16.14 crore. ICICI Prudential Life accounted for the maximum sales among private players, collecting Rs 19.92 crore.

The Life Insurance Corporation of India (LIC) mopped up the most at Rs 64.38 crore, with sale of just under 8,000 policies in the first quarter.

LIC chairman S B Mathur told Business Standard that certain class of people will always go for such plans as it suits their income profile. He cited stage artists, contractors and sportsmen whose earnings are irregular and erratic.

Single premium plans sold by private players rose from Rs 100 crore in 2001-02 to Rs 300 crore in 2002-03. Similarly during the same period, LIC sales however, fell from Rs 5,000 crore in fiscal 2002 to Rs 3,000 crore in 2002-03 on the back of falling interest rates.

While sale of single premium plans sold like hot cakes in the past, the budget announcement was a major dampener. Today, even as sales languish following the withdrawal of tax benefit, single premium covers have not died an early death.

For HDFC Standard Life, single premium plans account for nearly 40 per cent of total individual premium collection.

Private life insurance companies have seen in the sale of single-premium plans increasing to account for over 41 per cent of total industry premium collection under the various single premium schemes.