While most insurers favour status quo, will the lowering of surrender charges in traditional insurance cum investment plans benefit the policyholders? We ask the experts.
R.M. Vishakha, MD and CEO, IndiaFirst Life Insurance Co. Ltd
Unit linked insurance plans (Ulips) are market-linked, and investor bear the risk of capital and returns. A traditional product guarantees capital and returns, with the risk borne by insurance company. Comparing these only at surrender value is unviable, as the structure of the two is different and they are managed differently. Broadly speaking, traditional products are managed by the ALM (asset liability management) principle and are monitored regularly to balance returns and safety. The onus of absorbing long term interest rate risks and managing assets to meet the commitments lies with the insurer. About lowering surrender charges, I believe we are trying to solve the issue of customers losing the premiums paid in case of policy discontinuance. While the issue is genuine, the solution is impractical (as proposed by Irdai’s Product Committee Report), given the structural needs of the product.
