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Insurers push capital safety in wary market

When the times are bad, investors prefer safe earth to high-flying returns. And insurance companies are obliging once-bitten, twice-shy customers by offering a slew of products that protect their initial capital.

business Updated: Nov 23, 2008 20:41 IST
Falaknaaz Syed

When the times are bad, investors prefer safe earth to high-flying returns. And insurance companies are obliging once-bitten, twice-shy customers by offering a slew of products that protect their initial capital.

But industry experts say it would be wise for investors to compare the products with bank deposits.

In the past six months leading companies including ICICI Prudential Life, Bajaj Alliannz, Reliance life, Kotak Life, Birla Sun Life, IDBI Fortis have launched unit-linked policies that guarantee investors either the total premium amount, the first year premium or a fixed return.

Unit-linked policies (ULIPs) are life insurance policies where a portion of the premium is invested in the stock market.

Those who put in money at high stock market levels during the boom days by aiming to mix returns with risk management are licking their wounds.

Bajaj Allianz Life Insurance last week launched Capital Shield, a one-time premium policy with a five-year term which guarantees the premium. The company charges a 2 per cent management fee per year.

“The product is contributing a significant portion of the new sales,” said Pranav Mishra, senior vice-president at ICICI Prudential.

IDBI Fortis launched Wealthassurance in March this year. The unit-linked plan provides the option of guaranteeing the premium invested after deducting some charges. The company also has a return guarantee fund.

Kotak Life has launched Smart Kid while Birla Sun Life has launched Dream Plan, with maturity benefits guaranteed.

Reliance launched Super Invest Assure which guarantees a bonus from the 10th year onwards. Aviva Life Insurance is in the
process of launching a unit-linked plan and is mulling the re-launch of India Bond, a traditional life insurance policy that provides a return on the premium.

But the question is, how does capital protection fare in comparison with other safety products.

Says a financial advisor, who did not want to be identified: “In a capital guarantee ULIP, there is a minimum lock-in period of 5 years. Life insurers invest the premium in government securities which earn a return of slightly above 7 per cent. A bank FD is much safer, earning a return of 10 per cent and above for a one-year lock-in. Policyholders should buy a term policy to fulfill insurance needs and for safe returns, it is better to invest in fixed deposits of banks.”