Following recent changes to the guidelines for unit-linked insurance plans, companies are likely to focus more on single-premium products.
In single-premium products, policyholders need to pay the premium only once during the policy term.
Insurers said it would be easy to sell single premium products due to the zero cost of pursuing the product. The average ticket size is also higher and there is no risk of the policy getting lapsed.
"Single-premium products are going to become more attractive now. These are easier to sell and there is no risk of lapse attached to them," said IDBI Fortis Managing Director and Chief Executive Officer G V Nageswara Rao.
According to the norms, insurance companies are not allowed to pay more than two per cent commission on single-premium products. This is far lower than what agents earn from regular-premium products. After the cap on charges during the policy term, insurers expect the commission on regular-premium products to fall below 10 per cent.
"Companies will now tend to move towards single-premium products because of the new regulations, which have put a lot of obligations," said Star Union Daiichi MD and CEO K Sahay.
Executives of insurance companies said the cap on surrender charge was also driving them to single-premium products.
In recent changes in the investment-cum-insurance products, the Insurance Regulatory & Development Authority has fixed a cap on surrender charges. Insurance companies were charging as high as 100 per cent surrender charge in the first year.
Now, the charges have been capped both on a percentage basis and in absolute terms. In case of the annualised premium of Rs 25,000, an investor will have to pay less than Rs 6,000. The amount will be a maximum of Rs 3,000 in case the premium is lower.
In addition, according to the new guidelines, the single premium policy cover will now be based on the age of the policyholder rather than the tenure of the policy.
"It will become unviable to offer regular-premium products at these charges," said a chief executive officer of a life insurance company.
The largest insurer, Life Insurance Corporation of India, is the market leader in single-premium products.
