Life insurers are aggressively marketing child plans to fill up gap created due to absence of pension plans in the market. Companies such as Life Insurance Corporation (LIC), Kotak Mahindra Life Insurance, MetLife Insurance, IDBI Federal Life and Edelweiss Tokio Life Insurance Company have recently launched child plans.

“Child plans are seen as important savings instrument since the education costs are constantly rising and inflation is also showing no signs of coming down. As parents, every policyholder is looking to secure his or her child’s future, be it marriage or education. Ulip (unit-linked insurance plans) norms have already reduced options available to customers,” said GV Nageswara Rao, CEO and MD, IDBI Federal Life Insurance Company.

Child plan is one of the growth drivers for life insurance companies. “We have launched two child plans for two different age groups. Although we have not set any specific targets for these policies, we hope to attract significant number of customers, since our research shows that policyholder prefer traditional money-back plans over other plans. Also, these plans are straightforward and easy to understand for the policyholders,” said Andrew Cartwright, actuary (appointed) at Kotak Mahindra Life Insurance.

Child plans are available under both, Ulip platform and traditional. Under Ulip, risk of investment lies with the policyholder and there is no guaranteed return, whereas, traditional plans have guaranteed return and investment choice lies with the insurance company.

At present, there are only a handful of pension plans selling in the market. In November, the Insurance Regulatory and Development Authority (Irda) had relaxed guidelines for mandatory guaranteed returns on Ulips.

In an order issued in early November last year, Irda abolished mandatory minimum guaranteed return of 4.5 per cent that the insurers were to pay on Ulip pension plans. Irda has allowed insurers to fix their own minimum guarantee. These new guidelines came effective beginning December 1, but so far, none of the companies have decided on launching Ulip pension plan.

Insurers blame Irda for killing pension market by introducing regulations that are difficult to comply with. Sale of pension plans has plummeted post the September 2010 guidelines to about 2 per cent from about 30 per cent of the overall sales by life insurance companies. As per the data by industry body Life Insurance Council, contribution of the individual pension segment to the new business premium of life insurance companies now stands at 1.2 per cent from 28.3 per cent a year ago.

At present, only LIC has a unit-linked pension plan offering a guarantee of 4.5 per cent.

shrutiverma

@mydigitalfc.com