Budget has insurance firms running for cover

In the absence of any tax benefits life insurers fear they may lose a large chunk of business and hence premium income to other competing investment avenues.

“Now life insurers will have to sell their products as pure insurance products instead of a combination of insurance, tax savings and investment products,” said a source in Life Insurance Corporation of India (LIC).

He added, “The individual life products will be the most affected by the withdrawal of the Section 88 benefits and in this category, traditional products such as endowment and money back will be the hardest hit.”

Even investment products such as unit-linked insurance plans (ULIPs—, which caught the fancy of individuals last year, may lose out to mutual funds if insurers fail to lower the cost (to buyers) of ULIPs to bring them at par with mutual funds.

Many eyebrows were raised in the recent past about the high pricing of ULIPs vis-a-vis mutual funds. Even the Insurance Regulatory Authority (IRDA) itself expressed apprehensions about the unjust pricing of ULIPs by life insurers. “Life insurers will have to pare their costs and match the pricing and returns of their respective ULIPs with those of mutual funds,” the LIC official.

“Otherwise, buyers will find it more economic to buy a pure-term policy, instead of a ULIP, and invest the remaining of the premium in mutual funds bearing higher return,” he added.