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No beating about the bush.
An insider account of a life insurance company’s sales tactics
Working as a sales manager in a private insurance company, I came across the policy of a person of 30 years who had been unable to pay his premium for the second and third years. The sales operation person of the insurance company told him that he has to pay the rest of his premiums to reinstate his policy. He was also subjected...
Is it becoming a trend to use the premium payment term as a backdoor entry for ‘cover continuance’? While flexibility is the proposition for the new FLEXI Fortune plan, the ticket size for a 10-year policy term is high and so are the charges for longer-term policies
HDFC Life was the first to announce a flexible premium payment term facility. Now, Max New York Life (MNYL) has come up with its own flexible features like life cover, policy term, investment strategy and of course the premium payment term.
MNYL has packaged all this in its new 'FLEXI Fortune' ULIP, that appears to be yet another case of a backdoor entry of 'cover continuance', which was apparently eased out by the Insurance Regulatory and Development Authority (IRDA) under the new rules for ULIPs in September 2010.
FLEXI Fortune offers a life cover of 10/20/30 times annualised premium, policy term options of 10/15/20 years, seven investment fund options, and a flexible premium payment term of 5 pay/10 pay/15 pay.
According to Abhinav Rahul, vice-president - corporate communication, Max New York Life Insurance, "If a policyholder takes a 20-year term policy, under the terms of the policy the premium payment term cannot be beyond 15 years. After 15 years, the policy will not be discontinued, even though there is no premium payment. The funds remain invested in equity/debt and insurance cover continues from year 16 to 20. Moreover, the plan has a 'settlement option' wherein the policyholder can decide to extend the policy term by a further 5 years. In this example, the policyholder can extend the term from 20 to 25 years and still remain invested in equity/debt from year 21 to 25."
The plan also has a 'Progressive Auto Cover Enhancement' (PACE), which the company claims is the first of its kind. This increases the sum assured automatically by 10%, starting from the 2nd year and without any increase in premium. But this will lead to increased mortality charges for policyholders. Mr Rahul said, "The mortality charges for a policyholder aged 30 on a policy term of 10 years is 1.67 for every Rs1,000 sum assured. This will remain constant every year for 10 years of the policy term for the initial sum assured. However, in FLEXI Fortune, the sum assured keeps increasing by 10% every year (PACE) to meet the growing protection need. The policyholder will have to pay additional mortality charges for this addition to the sum assured."
The flip side of the constant mortality charge during the policy term is that it is high so that it averages out the risk over the policy term. Moreover, the mortality charges are higher for longer plan terms. For example, the mortality charges for the 15-year plan is greater than that for the 10-year plan, and mortality charge for the 20-year plan is greater than that for the 15-year plan.
Another worthwhile feature is the 'settlement option'. The customer may choose to defer his maturity in adverse market conditions by increasing his policy term by a maximum of five years without paying any further premium. This also allows for maximizing returns as it operates like a pure investment tool in the extended period. The percentage of the payout will then be equally divided in the number of years opted for by the customer. There will be no life insurance provided during the settlement period.
The premium allocation charge is 5% for the first year and 4% thereafter. The policy administration charge is Rs960 per annum for a 10-year term and Rs600 for 15/20 years. It will inflate @5% per annum compounded annually, from the second year of the policy. The policy administration charge is higher for the 10-year term than for other policy terms. The ticket size for a 10-year policy is also much higher than for other policy terms. The other important charges like premium allocation charge and policy administration charge are in line with new ULIPs for a five-year period, on the higher side for 10 years and very high beyond 10 years (on a comparison for an average ticket size of Rs24,000).
Announcing the new plan, Rajesh Sud, chief executive officer and managing director, Max New York Life Insurance, said, "We are excited to offer life insurance products that respond realistically to consumers needs. MNYL has designed FLEXI Fortune keeping in mind the varied needs of different people. The product offers customers the flexibility to choose the policy tenure and the protection multiple that best suits their goals-whether it be savings, retirement or family security.
"At the same time, it also offers tools to manage good returns without taking undue risks through seven different fund options. With the growing need for adequate financial planning to meet requirements at different stages in life, it is important that people invest in instruments that are bundled with features, which help to maximise returns. Launching FLEXI Fortune is a natural progression in our journey to offer the consumer a complete choice of growth-oriented savings to suit various needs."
Entry and maturity age: Minimum age at entry is seven years and the maximum age is 50 years; maximum age at maturity is 70 years.
Premium payment term/policy term: 5 pay for 10-year term; 10 pay for 15-year term; 15 pay for 20-year term.
Premium payment mode: Annual, semi-annual, quarterly and monthly (quarterly and monthly modes are allowed through ECS only).
Minimum premium: Rs50,000 for 5 pay for 10-year term, for others Rs24,000 (annual) or Rs36,000 (semi-annual, quarterly and monthly).
Maximum premium: Rs1,00,000
Level of protection: For age less than 30 years - 10/20/30 times AP; 31 to 40 years - 10/20 times AP; 41 to 50 - 10 times AP (where AP is annualised premium).
Riders offered: Personal accident benefit, against dreaded diseases.
Flexible premium payment term facility appears to be another form of the cover continuance that was eased out by IRDA
HDFC Life has launched ProGrowth Flexi, a unit-linked insurance plan (ULIP) with a flexible premium payment term (PPT) facility that appears to re-introduce the 'cover continuance' option through the backdoor. Cover continuance was eased out from ULIPs by the Insurance Regulatory and Development Authority (IRDA) post effective 1st September 2010.
Under the new plan, a policy term of 10 years has a minimum PPT of five years, whereas a policy term of 15+ years has a PPT of 10 years. (There is no offer for the 11-14 years period.)
Paresh Parasnis, executive director and chief operating officer, HDFC Life, told Moneylife, "If a policyholder takes a 30-year policy term, he has the option to change the premium paying term to 10 years (instead of regular payments for 30 years) and the policy remains in force till the end of the policy term, provided the person assured lives through the entire tenure.
"This option may be exercised if the customer is not able to pay regular premiums due to some exigency. The customer has to inform us about this change after he has paid premiums for at least five years of the policy. If the policyholder does not inform us and the premiums remain unpaid, then the policy lapses and discontinuance rules are applicable," he explained."
ProGrowth Flexi has a minimum monthly premium of Rs2,500. In addition to the flexible premium payment term facility, the plan also has a flexible premium payment options and five investment funds. It offers annual, half-yearly, monthly premium payment options. The plan has an Extra Life option that includes a death benefit and accidental death benefit (additional sum assured). The plan has a 30-day free look-in.
The premium allocation charge is 7.5% in the first and second year, 5% from third through fifth year and 0% thereafter. The policy administration charge is zero for five years and 0.46% per month of the original annual premium thereafter. The total charges are in-line with other new ULIPs after 1st September 2010.
Announcing the new plan, Amitabh Chaudhry, managing director and chief executive officer, HDFC Life, said, "We continue to listen to our customers and design products that are flexible to meet their needs. HDFC Life ProGrowth Flexi is targeted at those customers who are seeking a life insurance plan that is affordable and flexible and at the same time provides value. Apart from the normal life cover, ProGrowth Flexi provides extra life cover with accidental death benefits option."
"It also has a 30-day free look-in, the first time anybody in the industry is offering this facility. As ULIPs under the new regulatory regime are different, we believe that customers need time to get familiar with the new generation of ULIPs and fully comprehend the benefits available," Mr Chaudhry said.
Entry and maturity age: Minimum age at entry is 14 years and maximum age is 65 years; maximum age at maturity is 75 years. If a customer chooses the accidental death benefits option, the minimum age at entry is 18 years and the maximum age is 55 years; the maximum age at maturity is 70 years.
Minimum Premium: For the annual option it is Rs24,000, half-yearly it is Rs10,000 and monthly Rs2,500. Maximum Premium: No limit
Minimum level of protection: For ages less than 45 years, a higher of 10 x annualised premium or 0.5 x policy term x annualised premium. Age 45 or above - the higher of 7 x annualised premium or 0.25 x policy term x annualised premium.
Maximum level of protection: 40 x annualised premium
Premium Paying Term: For a policy term of 10 years the minimum premium paying term is five years; and for a policy term 15+ years it is 10 years.