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Unit-linked insurance products (Ulips) that have a component of equity investment as an element are seeing an increase in surrenders by policyholders.
Eager to make the most of the market rally in the past couple of months, life insurers said that customers are rushing in to surrender their products and book immediate profits.
Post the September 2010 Ulip guidelines by Insurance Regulatory and Development Authority (Irda), the minimum lock-in period for this product was increased to five years from three years earlier. This meant that the term of the product had to be five years or above, to ensure that customers stayed invested for a longer period.
Amitabh Chaudhry, MD & CEO, HDFC Life said, "We have seen customers surrendering Ulip products in the recent past due to the good performance of the markets. This, to some extent, has impacted our renewals, due to which renewal rates saw a dip."
On an average, Ulips comprise 35-45% of a life insurance company's product portfolio.
While insurance agents have advised policyholders to stay invested, still a section of them wish to surrender, said insurers.
"Surrendering Ulips in just five years is not just bad for customers, it affects a company's books too. Though we have tried to persuade individuals to stay invested so that they get the adequate return on their investment, not many want to consider this option," said the chief distribution officer of a private life insurance company.
The official added, that unlike popular perception, companies do not book surrender profits on this product since the exit charges are very low.
