LIC’s single premium income surges

 

Life Insurance Corporation bets on single premium income to bolster its sagging new premium income.

For the first time, LIC’s single premium income has surpassed its first year premium by Rs 6,000 crore for the eleven-month period ending February 28. In December 2008, LIC launched Jeevan Aastha, a traditional single premium policy with guaranteed returns that has tilted the balance dramatically in the favour of such lump sum cash investment policies that also give tax breaks to customers.

Mr Prashant Tripathy, Executive Vice-President – Strategic Planning and Development, Max New York Life, said that during times of economic slowdown people prefer to hold on to cash rather than invest lump sum money. This saw a dramatic decline in single premium policies of private players for the eleven month ending February 28. However, after the launch of Jeevan Aastha, LIC saw a surge in its single premium income.

In the last four years, single premium policies of private players, compared with first year premiums, have seen a gradual fall to 9 per cent from 24 per cent. On the contrary, LIC’s single premium policies’ share to other polices grew to 59 per cent for the eleven months of 2008-09, from 40 per cent in 2005-06. LIC’s single premium policies had overtaken the other policies premiums at Rs 25,048 crore compared with first year premium incomes of Rs 23,583 crore in 2007-08.

Mr Satyan Jambunathan, Senior Vice-President, ICICI Prudential Life, said that when interest rates are high, single premium policies are popular. But when interest rates and stock markets are down, customers prefer single premium policies with guaranteed returns. LIC is in a position to offer such a product.

Mr U.S. Roy, Managing Director, SBI Life Insurance, said that LIC has built substantial business over the last 50 years. Renewal premiums kick-in any way. As such, in a year when fresh premium collections are low, LIC could afford to bring in a guaranteed return single premium product to boost its premium earnings for that year.

Private insurers focus more on regular premium as they are cost-effective and build up value for insurance companies for the future years compared with single premium, said Mr Roy.