by Nirjhar Majumdar,
ZTC
Going by returns,
life insurance products fall under various categories.
With-profit products
give returns in the form of various bonuses at the time of claim payments while
there are products that give loyalty additions if the policy runs for a minimum
number of years.
Some products give
returns in the form of guaranteed additions.
Let’s see what these
guaranteed-return products are and whether they are superior to with-profit
products.
What
guaranteed-return products are..!
In these products, a
certain amount per thousand of sum assured is added every year. If the sum assured
is Rs. 1 lakh and the insurer offers a guaranteed return of Rs. 40 per
thousand, at the end of 3 years, the total guaranteed amount accrued is Rs.
12,000.
If a death claim
occurs at this point, the claimant gets Rs. 1.12 lakh. If the policy matures
after 20 years, the life assured gets Rs. 1.8 lakh.
Many people think
these products are great since they know the exact amount they will get at the
end of the term.
They thank the
insurers for the ‘certainty’ factor — there is no such surety in endowment or
whole life products.
The question is, does
the insurer give any return for such products? The insurer collects a premium
that enables him to pay the guaranteed sums at various points during the term.
The insurer is not
doing the life assured a favour with the guaranteed additions. Again, the
insurer
rarely guarantees a
high return for such products.
Do they score over
with-profit products?
With-profit products
work under a completely different mechanism. They declare bonuses based on the
valuations of the insurer’s assets and liabilities. The contribution made by
the policyholder, who has purchased a specific product, is taken into
consideration while declaring the bonus. This is scientific and, at the same
time, transparent for all. Insurers all over the world declare bonuses on the
basis of annual valuations.
What fits your bill?
It depends on the
valuations of a particular class of product. In guaranteed-return products, the
life assured knows what he will get. He pays the requisite money for that
guarantee. In a with-profit plan, that’s not the case. According to the
Insurance Regulatory and Development Authority’s (Irda) regulations, each
insurer has to declare bonus product-wise. The favourable performance of one
product line can not subsidise the poor performance of others.
Insurers have prudent
underwriting procedures. They know how to select and classify risk. They charge
extra premium from those with a greater mortality risk.
The management
expenses of such insurers are not very high. They are disciplined while
investing the policyholder’s money, making desired changes in the premium
structure. They advise field officials to select lives carefully. They also
take action against agents who bring bad lives repeatedly.
People should not buy
a product just on the basis of a company’s advertisements and the agent’s
assurances. They must research about the product.
According to Irda’s
instructions, each insurer has to disclose information on the bonus declared,
persistency ratio and incidence of early claims, among other things. A lot of
valuable information is available on the regulator’s website, which customers
must go through to take an informed decision.
Cover all bases
* Don’t buy a product
based just on the company’s advertisements and the agent’s assurances. Research
the product
* Insurer need to
disclose information on the bonus declared, persistency ratio and incidence of
early claims, among other things. A lot of valuable information is available on
the regulator’s website, which customers must go through
About the author..
The writer Nirjhar
Majumdar is research associate, ZTC, Kolkata.The views are personal
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