Limited Premium Saving Plans Gaining Popularity

Limited premium policies have become one of the best selling products of the life insurance sector. With single premium plans fading out in the retail segment, limited premium plans have been able to help life insurers to sustain their growth in the non-single premium segment.

In limited premium plans, customers pay premium for a shorter span of time for a longer period of insurance cover.

These plans are very useful for those people who prefer to be relieved from the commitment of paying insurance premiums for a longer duration.

There has been significant growth in these plans, as most customers have a limited horizon for investment and require funds for specific needs such as increase in childrenâs school or tuition fees or any other financial requirement at regular intervals.

Insurance companies also enjoy higher persistency levels if the limited premium paying product is suitable to the long-term financial goals of the policyholder.

For the past few years, limited premium products have been able to gain significant market share in India. Although its market share was 5-10% in the initial phases, it has increased to 15-20% in the past few quarters.

The factor that single premium products have become unattractive due to lower tax benefits has also contributed to the popularity of limited premium products.

The last budget (2012-13) had proposed that a life insurance policy would be eligible for tax benefits only if the sum assured was at least ten times the annual premium. This, too, impacted single premium products, as the sum assured on death is less then ten times the single premium in these products.

While yield-to-maturity does not vary much between limited premium and single premium, the total premium paid towards a limited pay policy can be higher then that of a single premium policy, leading to a higher maturity value.

Also, with a limited premium plan, a customer can link his change in income to the premium payment and can plan relatively bigger saving plans and sum assured as compared with a single premium plan. Further, tax benefit is limited to one year. Riders, too, are generally unavailable under single premium plans. However, they can be purchased under regular or limited premium plans.

Non-single premium income of life insurers has seen an 8.1% rise for April-December 2012 period in the retail segment. The new business premium for non-single segment rose to Rs 30,169.57 crores from Rs 27,892.84 crores in the last financial year.

On the contrary, single premium is seeing a decline of 6.4%. Single premium for the individual segment fell to Rs 10,518.48 crores for the April-December 2012 period, compared to Rs 11,238.48 crores in the same period last financial year.

Source: https://www.policymantra.com/blog/limited-premium-plans-gaining-popularity/