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IRDA: Insurers to sell single premium life policies again

The regulator in January had warned that single premium life policies were risky products and disadvantageous to both policyholders and insurers

May 02, 2012 4:42 IST | India Infoline News Service

According to media reports, the Insurance Regulatory and Development Authority (IRDA) has decided to allow insurers to sell single premium life policies again after threatening them to stop the sale of these products in January 2012.

The regulator in January had warned that single premium life policies were risky productsand disadvantageous to both policyholders and insurers. However, life insurers have been marketing these policies. According to them, these products are not as disadvantageous—as IRDA assumed them to be. Life insurers said that, single premium life policies were important for business since they contributed more than 45% of the total annual premium income.

Single premium policies refer to products where a policyholder needs to pay premium only once while he is covered for the term of the policy. In 2011-12, the total single premium (group and individual) declined by over Rs 100 billion, as insurers started focusing on regular premium products with the view that these products would offer better valuations. Thus, the share of single premium in the overall income of the life insurance industry declined 45%, to Rs 516.25 billion from Rs 622.30 billion in 2010-11.

According to the regulator, single-premium policies require a onetime lump sum payment. Hence, these products were not good for the long-term health of the industry as they do not inculcate disciplined savings habit. However, insurers said that these products were not disproportionate to the overall business and there existed a big market for them which is important for the profitability of these companies.

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