The exposure to non-participating policies with guaranteed returns continues to grow for life insurers, commanding a lion s share of the total product mix, despite the belief that investments in stock andcryptocurrencies are more popular than fixed income instruments.
There is a shift in what products people are opting for. People are moving more towards non-participating plans. The non-par contribution at IndiaFirst Life has gone from 15 per cent in FY 19 - 20 to 35 per cent in FY 20 - 21 to over 45 per cent in the current FY, said Rushabh Gandhi, Deputy CEO, IndiaFirst Life Insurance Company.
Guaranteed plans allow policyholders to choose to receive capital protection in the form of a lump sum or regular income for a certain number of years. The return from these policies is around 5 -- 6 per cent, which gets fixed at the time of buying the policy and remains the same throughout the tenure of the policy. HDFC Life's Sanchay Plus is one of the most popular plans in the market, which offers guaranteed payouts for different tenures. The option of the Long Term Income is a guaranteed income for a fixed term of 35 years with a premium of 5 years.
Vibha Padalkar, CEO and MD of HDFC Life, said that their guaranteed product is hedged for interest rate risk and the company has a cap to such exposures. We think that our non-participating portfolio will be around 30 per cent. Some variants have their own natural hedge. These might be shorter tenure guarantees and not long tenure guarantees. So long tenure guarantees will be less than 50 per cent of the overall 30 per cent portfolio. We have a fully hedged portfolio that means we have no fluctuations compared to some of the interest rate sensitivities. Pension plans have become popular because of the guaranteed amount they pay over the long term. Their tax treatment is what makes them separate from annuity plans. The payout is tax-free because guaranteed plans are treated as an insurance policy under the Income Tax Act. On this front, pension income is taxable, which is a disadvantage of deferred annuity plans. According to experts, 5 - 6 per cent of tax-free return acts are a deal clincher for fixed income investors, especially for those in the high 20 per cent to 30 per cent tax bracket.