Life insurance: choose participating policies now

Life insurance companies saw strong growth in non-participating and non-participating products as companies launched a slew of guaranteed products when interest rates fell.

Policyholders also preferred guaranteed products for savings, protection, retirement and annuity, as many have seen their savings and income eroded due to job losses due to the pandemic. Additionally, they were unwilling to compromise on non-negotiable life goals such as building a body of work for retirement or raising children, especially in these uncertain times.

Non-participating life insurance policies do not provide any premium payments, but provide guaranteed benefits such as the sum insured payable on the death of the policyholder or the maturity benefits payable when the plan matures. On the other hand, a participating life insurance policy pays both guaranteed benefits and unguaranteed premiums based on business profits to the policyholder after the policy expires or to the agent in death before the end of the policy term.

The share of non-participating products (savings and protection) in individual annualized premium equivalent (APE) fell from 18% in FY22 to 23% in FY2020, according to data from the ‘Insurance Regulatory and Development Authority of India (Irdai). Experts say the rise in demand for non-participating products was due to low interest rates offered by banks on term deposits and innovative guaranteed products offered by insurers due to various coverage options.

Rakesh Goyal, Director of Probus Insurance Broker, explains that although participating insurance products have always remained in demand, over the past two years, as interest rates have bottomed out, companies have offered guaranteed products, which led to an increase in sales of non-participating products.

In fact, Outstanding Savings grew 25-50% year over year for SBI Life, HDFC Life and Bajaj Allianz Life. On a three-year CAGR basis, peerless savings growth was 45% for HDFC Life, 66% for Max Life and 85% for Bajaj Allianz Life, according to analysis by Kotak Institutional Equities. “The share of best-in-class savings relative to the overall equivalent annualized bonus has increased by nearly 10-20% over the past three years for most gamers,” Kotak’s research note points out.

How do products without face value work?

Non-participating guaranteed plans are preferred by those who want fixed, assured returns on their savings, even if the returns are low and the premium is lower than with participating policies. Policyholders have the flexibility to choose the guaranteed payout structure based on their evolving life goals. to ensure cash flow for non-negotiable life goals. However, before opting for a guaranteed return plan, clients should analyze the internal rate of return (IRR) which is only 5-6% per year.

Participatory contracts, an alternative

The participation policy offers protection as well as returns in the form of bonuses/dividends. Premiums or dividends earned are paid on an annual basis and the amount of the premium depends on the performance of the insurer. Participating insurance plans, such as unit-linked insurance plans, can not only guarantee the insured with insurance coverage, but also achieve higher returns over the long term due to exposure to shares.

What should policyholders do now?

Non-participating products are still advantageous in the lower interest rate regime. Typically, insurance companies offer guaranteed products and returns are higher than prevailing interest rates. Goel says that now, with interest rates likely to rise, participating policies can also be considered. “If someone is looking at products with no face value, they should wait for rates to peak because they might get higher returns,” he says.

Nayan Ananda Goswami, Manager, Group Business and Retail Sales & Service, SANA Insurance Brokers, says fluctuating interest rates, stock market volatility, rising inflation and the delayed recovery in purchasing power influence the spending capacity of the middle-income consumer segment.

“The right mix of guaranteed products and equity-linked products should be determined with these crucial factors in mind, especially in an era where savings protection is replacing contingent income,” he said. declared.


* Participating plans such as Ulips provide insurance coverage as well as higher long-term returns due to equity exposure

* The internal rate of return (IRR) on a guaranteed plan (non-participating product) is only 5-6% per year

* The share of non-participating products (savings and provident) in individual APE increased to 23% in FY22 from 18% in FY20