The economic slowdown that has inflicted a deep cut across equity markets around the

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world has come as grist to the mill for insurance companies selling products that suit the present turbulent times.

The industry is now increasingly aligning its product portfolio to meet the need of the hour. With investors across asset classes still licking wounds, products that offer guaranteed returns have become the flavour of the season. Gauging the need of the investing community, insurance companies are now trying to woo investors with term plans and guaranteed unit-linked insurance products (Ulips), and they have been successful at it so far.

According to a global survey by Aviva, there is a clear need for term products than ever before.

Insurance companies such as Aviva Life Insurance, Max New York Life, HDFC Standard Life, ICICI Prudential Life Insurance, Bharti AXA Life, Tata AIG Life, Reliance Life and Star Union Daiichi Life have launched many guaranteed-return and term products since October.

A term product is a plain mortality product. It is mainly for people in the 35-50 age bracket, who have high risk appetite and can keep a small amount aside regularly. Term insurance, as the name suggests, is for a specific term and has the lowest possible premium among all insurance plans. It is pure insurance protection, because it builds no cash value.

“In a term product, apart from pure life insurance, where the nominee gets money after the death of the policyholder, there are no other benefits. The consumer stands to lose out the entire amount if she outlives the policy term,” said Pranav Mishra, senior vice-president, head-products, ICICI Prudential Life Insurance.

According to him, many insurance companies, as part of innovations, have started giving part of the premium paid or 150 per cent of the first premium to the insured if she survives the policy.

Typically, a term plan for a sum assured of Rs 10 lakh and a duration of 30 years costs about Rs 3,430 a year. In the event of death of the policyholder during the term of the policy, the nominee receives the sum assured immediately. If the insured survives the term of the policy, she does not receive any money.

A unit-linked plan is where the investor opts for funds to be directly linked to the equity market. Ulips combine the benefits of both life insurance policies and mutual funds. The investment is denoted as units and is represented by the value — termed as net asset value (NAV) — which it has attained.

The flexibility of investment, apart from life cover, is what drew investors to Ulips when the market was booming. The transparency and flexibility that a unit-linked policy offers has also attracted many investors as against other traditional policies.

After the market crash in January 2008, insurers witnessed a sharp drop in inflows to Ulips. To bring them back, many insurance companies have come up with guaranteed-return Ulips, where investors are promised a definite amount on the maturity of the plan. Today, Ulips accounted for more than 90 per cent of an insurer’s portfolio.

According to Amish Tripathi, national head, marketing and product management of IDBI Fortis Life Insurance, there has been definitely some movement within Ulips, where people are going for guaranteed-return funds. “Earlier, out of Rs 100 that went into Ulips, only Rs 10 would go into guaranteed-return funds, but now the amount has gone up to Rs 50,” Tripathi said.

Consumer’s preference for safety has not only been recognised by insurers but also by distributors. According to Rajesh Sud, managing director and CEO of Max New York Life, there is increased preference for traditional and safe plans. “The emphasis now is not much on equity-linked products. Consumers are now looking at long-term guranteed-return products,” Sud said.