Insurance: an investment product?
Aug 25, 2000

Author: PersonalFN Content & Research Team

In a bid to move ahead of its competitors and secure itself the top slot, Life Insurance Corporation (LIC) is planning to float a unit-linked insurance plan.

If media reports are to be believed, the pilot project is currently on. However the new product, expected to hit the market by December 2000 will offer three funds to policyholders--debt, equity and a balanced fund. The new product is expected to offer investors `a switch over' facility from one fund to another.

With the launch of the unit-linked insurance product, LIC will become the first institution in the country to offer a full-fledged insurance product linked to mutual funds.

Currently Unit Trust of India (UTI) has a unit-linked fund which offers limited insurance cover. The institution's Unit Linked Insurance Plan (ULIP) is a unique, multiple benefits plan which combines the basic benefit of life insurance with good returns, tax benefits and accident insurance cover. The plan also offers tax rebate of 20% on the amount invested under section 88 of the Income Tax Act within the overall limit of Rs 60,000. Accident insurance cover available under the plan is up to Rs 50,000.

Although at this stage LIC has not revealed the structure of the product it is expected to offer, a unit linked insurance product will find many takers as the returns offered under the plan will depend on the performance of the fund (market driven), unlike other insurance products currently available in the market.

However there is no denying the risk element associated with a market linked insurance product. The fact that policyholder will have an option to switch over from equity to balanced fund will make the product much more flexible and attractive to policyholders looking at insurance from investment point of view.

To maintain its numero uno position in the insurance sector, the public sector insurance major is currently in the process of restructuring some of its schemes. The institution has already made substantial changes in some of its annuity plans. It has also revised the rates offered on some of its pension products. The gigantic life insurance major is definitely moving ahead.