India has lowest term plan premium in the world | Economic Times

Term insurance premiums have gone up due to hike in reinsurance rates after Covid. But premiums are still quite low compared to what term plans charged 10-15 years ago, Tarun Chugh, Managing Director & CEO, Bajaj Allianz Life Insurance tells ET Wealth.What has been the impact on the sales of life insurance plans after the recent changes in tax rules?Pretty much everything that is market-linked is now taxed. If I just talk of the life insurance sector, for many investors the tax benefits on life insurance was a big motivation. Before the Budget was announced, close to about 40% of our Ulip premiums used to come from plans of Rs 2.5 lakh premium and above. After the change in tax rules, their contribution to total premium has come down to under 30%. So, the change in Ulip taxation has had a clear impact on sales of big-ticket plans.At the same time, has the new tax on Provident Fund contributions above Rs 2.5 lakh made endowment plans appear more attractive?To an extent, but not entirely. All said and done, the pre-tax returns of the Provident Fund are still the highest at 8.5%. Till now, people used to put money into PF automatically. But now that contributions above Rs 2.5 lakh a year will attract tax, many people will not be doing that. Our endowment plans are currently doing well, but this is not because of any tax arbitrage but because fixed deposit rates have come down. Banks no longer find it profitable to issue fixed deposits when they can get money from the RBI at a very low rate.Interest rates have fallen in recent years. How are endowment insurance plans able to give 5.5% returns when interest rates are so low?We invest in long-term bonds of 15-40 years where the rates are still quite good at 7% and thereabouts. Therefore, we are able to pass on higher returns to customers. They are able to earn 5% guaranteed post-tax returns from these products.Is that why there was a spate of guaranteed income policies this year?Covid has given rise to the thinking that let’s save first and then think about growing wealth. While people are happy playing the risk in the equity market, they do want to have a pot of gold which is kept aside in safe bets. Normally this used to be fixed deposits, but now that deposit rates are down, guaranteed income plans are in favour. This is not only in India but across the world. Please note that for every guaranteed income plan we issue, we have to keep a certain reserve. We are currently gaining from this, though I don’t know how long this will continue—maybe another year or so.Covid caused a large number of deaths in the past 18 months. Has that led to a hike in insurance premiums?Life insurance companies take a certain amount of risk directly while the rest is reinsured. Reinsurance premiums have gone up, so our premiums were also hiked 6-8% a few months back. But you must look at the big picture. Fifteen years ago, a life cover of Rs 50 lakh cover for a 30-year-old person for 30 years cost around Rs 13,000 a year. Today it costs just Rs 5,600, which is nearly 60% lower. Yes, term plan premiums have increased a little bit, but still remain very low compared to what one pays for life insurance in other countries. In Singapore and Germany, premium rates for a comparable cover are at least 20% higher than what one pays in India. This is why we see many non-resident Indians (NRIs) purchasing term life insurance cover in India.Do you offer life insurance cover even to people residing outside the country?Yes, of course. We cover NRIs and PIOs—as long as they are of Indian origin, we offer them insurance cover. Even if a person who has changed his nationality can be covered if he has an Overseas Citizen of India (OCI) card. If a person living in India takes insurance cover but moves abroad after a few years, the cover will continue as long as the premiums are paid regularly.When covid blew up last year, insurance companies were not issuing policies to people who had suffered from the virus. Do you refuse cover to those who have had covid?No, we have been issuing policies. We ask all applicants to fill the covid questionnaire. If a person hasn’t had covid, the policy is issued. If he says he has had covid, we just tell him to wait for some time and come back after 3-6 months. We were not doing this in the first wave, but in the second wave the underwriters were unsure whether it has had any effect.The Bajaj Group wants to get into the pension segment in a big way. Are you planning an NPS foray?We like the NPS, and are currently an annuity service provider. An NPS subscriber can buy an annuity from Bajaj Allianz. But we don’t find the NPS fund management rates viable to service our customers. So we will take a little more time to evaluate an entry in the NPS.Investors in NPS are eligible for an exclusive tax deduction of Rs 50,000. But pension plans from insurance companies don’t enjoy that benefit.This is something the government needs to look at. Tax benefits are an important consideration for investors. Wherever pensions have picked up, it is because of tax benefits. Pension plans are long-term investments, and if we are able to convince the investor to remain invested that money goes into government infrastructure funding as well. Every year we request the government for a level playing field, but I guess the government has to balance out its tax revenues. Somewhere we lose out in that process. Maybe because NPS is a new scheme, the government wants to help it out.