The Study of Trends in Life Insurance Sector and

Growth of ULIPs in India

- Mrunal Chetan Joshi1

Abstract
Recently continuous increasing in the contribution of Service Sector in GDP of Indian
Economy, Life Insurance Sector is one of most important sector playing its role in the growth
of Indian Economy. As Globalisation and Liberalisation has open the doors for foreign
companies to enter in to this sector in India, of course through joint venture only, they have
identified the potential of the Indian market. Thus numbers of new private companies have
started their business in Life Insurance Sector and still numbers of companies are preparing to
enter into this sector. IRDA is playing its crucial role in managing all this efficiently in
interest of general public.

In this scenario, Life Insurance sector has also faced down-ward growth rate as global melt
down during year 2008-09. But now near about all problems have been settled in India and
India's insurance sector is zooming to show an unprecedented progressive growth of more
than 200% by the period of 2009-10. As Indian Stock market has also achieved stable growth
in last more than six months, investment avenues based on it are also performing well
afterwards. ULIPs have also shown its increased market-share, in the total insurance
business. ULIPs are also well managed by IRDA well, even in terms of ceiling of total
charges charged by Insurance companies. IRDA has established detailed guidelines with
explanation of the terms used in it. Finally we can say about ULIPs that its performance can
be identified by its NAV and its growth, which could be the important variable for the
investors for their investment decision.

Introduction
Due to out performance of Stock Market in last decade of time, Recently Stock Market has
become hot favorite market amongst the Investor of India. Number of Professional Investors
and Portfolio Managers has been emerged and they are playing their roles in different ways in
Indian Financial Market, like Portfolio Management (PM) Services, MFs, and ULIPs etc. and
stock market based other investment instrument has emerged.

At the same Life Insurance sector is also fast growing service sector, as people have became
more conscious and rational about their future planning during their life and for after their life
for their dependents and other family members. This increasing importance of Insurance
sector could be understood by identifying the active roles playing by the Private Life
Insurance Companies.

Insurance sector is facing Generic Competition from this all other investment avenues to get
money from financial market. Hence this sector has also come with innovative product like
Unit Linked Insurance Plans (ULIPs). ULIPs are very important instrument which provides
the link between two crucial investment avenues i.e. Non-debt Securities in Stock Market and

1
Lecturer, B.R.C.M. College of Business Administration, Surat, Gujarat, India

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Insurance Plans. Transparent and Well-organised stock market provides good channel
between Industries, which are in need of Finance and Investors, who want to maximize their
return with minim risk. It is very difficult for small investor to move fast in these dynamic
financial markets. At the same time it is very important for Investor to consider their
numerous needs related various aspect for their investments viz. Safety, security, tax-
planning, Liquidity etc.

Unit Linked Insurance Plans (ULIPs)

ULIPs are a category of goal-based financial solutions that combine the safety of insurance
protection with wealth creation opportunities. In ULIPs, a part of the investment goes
towards providing you life cover. The residual portion of the ULIP is invested in a fund
which in turn invests in stocks or bonds; the value of investments alters with the performance
of the underlying fund opted by you.

Unit linked insurance plan (ULIP) is life insurance solution that provides for the benefits of
risk protection and flexibility in investment. The investment is denoted as units and is
represented by the value that it has attained called as Net Asset Value (NAV). The policy
value at any time varies according to the value of the underlying assets at the time.

In a ULIP, the invested amount of the premiums after deducting for all the charges and
premium for risk cover under all policies in a particular fund as chosen by the policy holders
are pooled together to form a Unit fund. A Unit is the component of the Fund in a Unit
Linked Insurance Policy.

The returns in a ULIP depend upon the performance of the fund in the capital market. ULIP
investors have the option of investing across various schemes, i.e., diversified equity funds,
balanced funds, debt funds etc. It is important to remember that in a ULIP, the investment
risk is generally borne by the investor.

In a ULIP, investors have the choice of investing in a lump sum (single premium) or making
premium payments on an annual, half-yearly, quarterly or monthly basis. Investors also have
the flexibility to alter the premium amounts during the policy's tenure. For example, if an
individual has surplus funds, he can enhance the contribution in ULIP. Conversely an
individual faced with a liquidity crunch has the option of paying a lower amount (the
difference being adjusted in the accumulated value of his ULIP). ULIP investors can shift
their investments across various plans/asset classes (diversified equity funds, balanced funds,
debt funds) either at a nominal or no cost.

Literature Review
Silender Sing and Satpal (2009) In study of Customer Satisfaction in ULIPs at and Delhi,
they have observed amount of the maturity of policy is most favorite factor, whereas period
of surrender of the policy is least preferred variable. This consideration is important for Life
Insurance Companies to plan polices and its features in future.

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Karuna K. (2009) ULIPs like other products cannot claim to be a perfect financial solution.
But, for an investor who invests judiciously and is ready to wait patiently, ULIPs is one good
investment vehicle available in the Indian financial market.

Pa. Keerthi,, R. Vijayalakshmi (2009) All the respondents/ Policy holders have certain level
of expectations from the services that are to e delivered by an insurance company. Their
expectation level varies irrespective of the demographic profile but they look forward to
excellent delivery of services.

Mr. Khanna, Member (Actuary) IRDA (2009), ULIPs are of generally long duration (12-
20 years) the ups and downs in the market are natural. When the market is down it not good
time to redeem the money from units, some investor see this as a good period to invest.

Sunil Dhawan (2009) Investors in the high-risk category should give priority to equity-
linked products such as ELSS or Ulips over fixed income products.

Objectives of the Study

 To study of Trend in Life Insurance sector in India.

 To study the various trends and growth of ULIPs.
 To Compare certain Child and Retirement ULIPs.
 To identify differences between Mutual Fund and ULIPs as an investment avenues.

Research Methodology
This research is Descriptive type of research, in which it studies about the current position of
Life Insurance sector and various trends in ULIPs. The study strives to describe the growth of
ULIPs, Differentiate from MF and comparative study between certain important ULIPs. This
research is completely based on Secondary data. Data source for the study is different
research paper published in various journals, guidelines published by IRDA, articles
published in newspapers and magazines and on internet. Finding and analysis is based on the
review of secondary data. Percentage is used to study the growth rate. Comparative tables
were prepared for differentiate between ULIPs. For comparison between different ULIPs
market share up to the year 2008 where consider for the selection of the top five companies.
Lastly comparison is made between MF and ULIPs on the basis of certain important aspects.

Finding and Analysis

Trends in Life Insurance Sector in India

The penetration of life insurance was less than 1% till 1990-91. During the 90’s, it was
between 1% and 2% and from 2001, it was over 2%. In 2003-04, it was 2.4% and the year
2006 it had increased to 4.1%. After opening up of the insurance sector to the private players,
the GDP from life insurance and its penetration has increased, which revealed that the
insurable population is more and there would be more opportunities for all players in
Insurance Sector [4]. Increase in market share by 120% from the opening up of the sector in

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2000 when it was only $21.71 bn to $ 47.89 bn in 2007 [9]. Insurance penetration in the year
2008 when the sector was opened up to the private sector was 2.32 (life 1.77 and non-life
0.55), and it has increased to 4.60 in 2008 (life 4.00 and non-life 0.6). The increase in levels
of insurance penetration has to be assessed against the average growth of over 8.2 per cent in
the GDP in the last five years [10].

The Indian life insurance market generated total revenues of $41.36 billion in 2007, thus
representing a compound annual growth rate (CAGR) of 11.84% for the period spanning
2000-2007. Life insurance market had a growth of $22.46 billion within a period of 7 years
with a growth rate of 118.24%. Estimated life premiums rose to INR 1,470,800 million
($36.77 billion) in 2006 from INR 1,301,540 million ($32.54billion) in 2005. We envisage
that life premiums in 2011 will be $65.96 billion, a growth larger than they were in 2007. The
performance of the market is forecast to accelerate, with an anticipated CAGR of 9.78% for
the four-year period 2007-2011 expected to drive the market to a value of $65.96 billion by
the end of 2011. There would be a growth of $24.6 billion i.e. 59.48% in the next 4 years [8].

The life insurance industry (first year premium) has shown a growth of 37% for the period
1996-97 to 2000-2001 and 46.63% for the period 2001-02 to 2007-2008. Market share of
different Life Insurance Companies are as follow during the year 2008 is shown in Figure 1.

Figure 1 (Source: As per a report published in 2008

by Ms Pinky Walia-Financial Advisor)

In 2008-09, on account of the financial meltdown, the life insurance segment saw a
downward trend. The first-year premium, which is a measure of new business secured,
underwritten by the life insurers during 2008-09 was Rs 87,006 crore as compared to Rs
93,713 crore in 2007-08, registering a negative growth of 7.2 per cent. In terms of linked and
non-linked business during the year 2008-09, 50.9 per cent of the first-year premium was
underwritten in the linked segment while 49.1per cent was in the non-linked segment as
against 75:25 in the previous year. The shift towards the traditional segment is significant
during the year 2008-09 [10].

India's insurance sector is zooming to show an unprecedented progressive growth of more

than 200% by the period of 2009-10. The Associated Chambers of Commerce and Industry of
India has clocked out the fact that during this period, private players in the industry will see a
growth of about 140 per cent, owing to the adoption of the aggressive marketing techniques

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in comparison of the growth rate of 35 per cent-40 per cent achieved by the state owned
insurance companies. The chamber is expected to poise the business of insurance to reach at
Rs.2000 billions in coming 2 years from the present level of Rs. 500 billion. With the result
of adoption of the intense marketing strategies by the private players, the declination has been
witnessed in respect of the share of the state owned insurance companies captured in the
market.

Various Trends and Growth in ULIPs

IRDA has provided very specific guidelines for all different aspect related to ULIPs in
Annexure of CIRCULAR NO: 032/IRDA/Actl/Dec-2005 dated 21/12/05[1]. This guidelines clarifies
about certain features of ULIPs like Benefit Payable on death, Calculation for minimum sum assured,
Minimum Policy term, Guarantees on policy benefits, Surrender Value, Loans, Partial withdrawal,
Settlement option, Unit Pricing, Computation of NAV, Riders and Terminology. But IRDA’s
guidelines do not specify the maximum limit for different charges.

First ULIP was from LIC, which launched its Bima Plus in 2001. Private players like Aviva started
off only with ULIPs and others were quick to follow. The response to these plans was so encouraging
that more and more players launched their versions. Up to January 2006, ULIP accounts for the bulk
of the first year premium income that most insurers earn going as high as 95 per cent for Birla Sun
Life and ICICI Prudential [6].

As on 2004-2005, the total invested funds of ULIPs stood at Rs 7,528 crore, of which LIC contributed
Rs 2,759 crore and private players, Rs 4,769 crore. The total funds have increased by Rs 5,840 crore
compared to the year 2004-04, the main contributors being LIC (Rs 2,549 crore), ICICI Prudential (Rs
1,557 crore) and Birla Sun Life (Rs 651 crore) [6]

The life insurance industry underwrote 5.09 crore policies in 2008-09 reporting a growth of 0.10 %.
The share of ULIP business in the first year premium in 2008-09 was 37.30 per cent while the non-
linked premium was 62.70 %.

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Comparative Analysis of Child and Pension ULIPs

On the basis of the Market share during the year 2008, top five life insurance companies
where selected. Than mainly Child and Pension ULIPs where compared on the basis different
features.

Comparison of Unit Linked Child Plans

BAJAJ
ICICI RELIANC
ALLIANZ SBI LIFE
PRUDENTI E LIFE
LIFE INSURAN
CRITERIA LIC AL LIFE INSURAN
INSURAN CE CO.
INSURANC CE CO.
CE LTD.
E CO. LTD. LTD.
CO.LTD.
child Reliance
young care unit plus
plan name fortune smart kid secure
II child plan
plus child plan
min entry
0 year 0 year 0 year 0 year 1 month
age of child
max entry
10 year 15 years 15 years 15 years 15 years
age of child
min entry
age of 18 years 18 years 20 years 18 years 21 years
parent
max entry
age of 55 years 50 years 60 years 57 years 50 years
parent
min
maturity 18 years 18 years 18 years 18 years 18 years
age of child
max
maturity 25 years 25 years 25 years 25 years 25 years
age of child
max
maturity
75 years 75 years 75 years 65 years 70 years
age of
parent
min/max 20 & 25
10-25 years 10-25 years 8-25 years 10-25 years
term years
payment regular/ regular/
regular Regular regular
mode single single
annual/half annual/half annual/half
annual/half annual/half
type of yearly/quart yearly/quar yearly/quart
yearly/ yearly/
premium erly/ terly/ erly
monthly monthly
monthly monthly /monthly

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 regular
premium:
annualized
3 year PPT:
regular premium
Rs. 84000,
premium- multiplied
5 year PPT:
Rs. 10000 by half of
min. rs.20000 per rs.10000 per Rs.60000,
p.a. single the policy
premium annum annum 7 year PPT:
premium- term single
Rs. 48000,
Rs. 40000 premium:
18 year:
p.a. 125% of the
Rs. 12000
single
premium
amount
Top up
Rs.1000 Rs.5000 - Rs.2000 -
premium
free look
15 days 15 days 15 days 15 days 15 days
period
regular
Rs. 60/- per premium:
month Rs.40 per
during the month,
first policy limited
year, Rs premium
20/- per policies(dur
month Rs. 52.50 ing
during the per month Rs.60/- premium
second year inflating at then after payment
There would
and 5% p.a. will in first day term): Rs.
be a fixed
policy thereafter, be deducted of policy 40 per
administration
administrati from the at each month after month,
charges of
on charges third year monthly 1st April of limited
rs.60 per
on wards till anniversary every year premium
month
the end of by @ of 2% policies(afte
the policy cancellation grows. r premium
term Rs. of units. payment
20/- per term): Rs.
month 35 per
escalating at month,
3% p.a. single
shall be premium:
levied Rs.35 per
month
free 4 in every 4 in every 4 in every 4 in every
Unlimited
switches policy year policy year policy year policy year
min. switch Rs.100 per Rs. 100 per
NIL Rs.2000 Rs.10000
charges switch switch

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 UL
accelerated Income Accidental Accidental
critical benefit rider, death and death and
illness rider, accident and permanent permanent
Rider No rider
accidental disability disability disability
benefits benefits
permanent benefit rider, rider, rider,
total/ partial waiver of critical critical
disability premium rider illness rider illness rider
benefit rider,
Surrender
Death Death
benefit, Death benefit,
Other benefit, Death benefit,
maturity maturity
benefits maturity benefit maturity
benefit, benefit
benefits benefit
death benefit
life assured Child Child Parent Parent Parent
Child/
beneficiary child Child Child Child
family

Comparison of Unit Linked Pension Plans

BAJAJ ICICI RELIAN

ALLIANZ PRUDENT CE LIFE
SBI LIFE
LIFE IAL LIFE INSURA
CRITERIA LIC INSURANCE
INSURAN INSURAN NCE
CO. LTD.
CE CE CO. CO.
CO.LTD. LTD. LTD.
1)Horizon ii Golden
Retiremen Life time
pension 2) years
Plan name Future plus t super
unit plus II plan
advantage pension
pension value
min age of
18 years 18 years 18 years 18 years 18 years
entry
max age of
65 years 65 years 65 years 60 years 59 years
entry
min vesting
40 years 40 years 45 years 50 years 45 years
age
max vesting
75 years 80 years 75 years 70 years 64 years
age

min premium
10 years 5 years 10 years 5 years 5 years
paying term

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 Rs. 5000 p.a.
in regular In horizon II
premium. Rs. 30000 Rs. 10000 rs.12000 p.a. Rs.10000
min premium
RS.10000 p.a. per annum in unit plus II p.a.
p.a. in single Rs. 24000 p.a.
premium
yearly/
yearly/ half yearly/ half
yearly/ half half
Premium yearly/ half yearly/ yearly/
yearly/ yearly/
mode yearly quarterly/ quarterly/
monthly quarterly/
monthly monthly
monthly
age group 18-
35 yrs.:5 times
in horizon II &
125% in unit
plus II the
first
Single
annualized
premium-
premium
Equal to the
subject to
Single
maximize SA Minimum
Premium
of rs.10 lakhs sum
Regular sum assured
age group 36- assured:
premium-5 is annual
45 yrs.:5 times Rs.
to 20 premium
sum assured - in horizon II & 25000
(integer) multiplied
125% in unit maximu
times of the by policy
plus II the first m sum
annualized term
annualized assured:
premium as
premium no limit
per the
subject to
option
maximize SA
exercised by
of rs.5 lakhs
the proposer
age group 46-
60 : fixed
rs.1.2 lakhs in
horizon II &
125% in unit
plus II

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 For the first
year Rs.
560 p.a. if
policy term
Monthly
14 years &
administrative
lossless &
charges are
Policy Rs.720p.a. Fixed of Rs.
fixed to Rs. No
administratio No charges if policy 40 per
70/-.these charges
n charges term 15 month
charges are
years &
increased @
more
2%p.a.
charge will
inflate
every year
at 5%p.a.
1.35%p.a
of NAV for
equity
growth
pension
fund, mid-
cap pension
Pension
fund &
flexi growth
pure stock
II, pension
pension
multiplier II, Equity pension
fund. capital
pension fund-1.5%,
1.25% of structure:
return bond pension
NAV for 1.50% ,
bond fund & guarantee fund -1%,
equity balanced
income fund: 1.50% money market
Index fund:
annual fund fund-1%, p.a., Pension pension fund-
Pension 1.50%,
management balanced balancer II, 0.25%,
fund II & growth
charge fund-1.25%, pension growth
Asset fund:
growth fund- flexi pension
allocation 1.75%,
1.50% balancer II: fund:1.35%,
pension equity
1.00% p.a., balanced
fund. fund:1.75
pension pension fund:
0.95%p.a. %
protector II, 1.25%
of NAV for
pension
bond
preserver:
pension
0.75%.
fund and
0.95% p.a.
of the
NAV for
liquid
pension
fund

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 first 3
First 3
First 3 years:
year: NIL.
year: NIL. year 4- NIL 4th
year 4 :
year 4 : 4% year10:1% of year:
Surrender 15%
2.50% year 5 : 2% fund value 10%, 5th
charges year 5 : 5%
year 5 year 11 year:
year 5
onwards: onwards: NIL 5%, 6th
onwards:
NIL onwards:
NIL
NIL
Horizon II:
not available,
unit plus II Accident
Accident pension: death,
Accident,
death and accident death total
Rider critical Not
disability and accident permanen
benefits illness available
rider, waiver total t
benefit
of premium permanent disability
disability rider
rider, critical
illness rider,
Horizon II:
Tax advantage,
Death retirement
benefit, Death benefit, death Open
Death
immediate benefit, benefit market
Other benefit,
annuity cover unit plus II option,
benefits maturity
options, continuance pension: death death
benefits
surrender option benefit, option benefit
benefit to continue the
policy with
life cover
plus II
free switches 4 switches Unlimited 4 switches pension- 4 1 switch
switches
1% of
Switch Rs. 100 per Rs. 100 per Rs.100per
NA amount
charges switch switch switch
switched
free look
15 days 15 days 15 days 15 days 15 days
period
in horizon II-
min top up Rs.1000 , in
Rs. 1000 Rs. 5000 Rs.2000 Rs. 2500.
amount unit plus II:
Rs. 5000

Interpretation of Comparison
Out of above comparison we can understand that there is no much difference in general in
same kind of funds. The most important aspect for decision making is security and return
generated by Investment companies. Even costs related to ULIPs are near about same. Hence
it is important to analyse the risk-return relationship. But risk-return analysis is not a part of

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the scope of this study, hence it is not done here. But in future some can do the same, which
could be useful for investor to take investment decision through ULIPs.

ULIP and Mutual Fund

Conceptually, in terms of the structure of the product, there is very little difference between a
Mutual Fund Scheme and ULIP schemes without risk coverage. Both these are market linked
for returns, carries the market risk and in both these options investor get returns based on the
performance of the stocks selected and invested by the fund manager who manages the MF
scheme or the ULIP scheme.But though they are similarities they are different from each
other in following ways.

o The way the products are managed and more importantly regulated varies significantly.
MF is regulated by SEBI while ULIPs are regulated by IRDA.

o As an Industry, MF looks at low cost, better performance as its USP, while Insurance
looks at distribution reach as their USP.

o Mutual Funds are generally sold by 'agents who distribute various AMCs products' while
Insurance is sold by Agents who are tied to one single Insurance Company (except
insurance brokers who are far less in number when compared to tied agents). This is a
major factor to be considered as a tied agent tends to understand and position only the
products of his principal insurance company, while a un tied agent of Mutual Fund is
expected to be performance oriented in terms of choosing a fund when his fees is
dependent in today’s context on the satisfaction of the investor.

o The transparency requirements of a Mutual Fund are far more stringent than the ULIPs.
Daily NAV, Portfolio Disclosure etc which are followed in the MF industry is far higher
thus providing necessary information to the investor.

o Typically, the cost investing in MF is far lesser than that of a general ULIP scheme

o The liquidity available in MF scheme (other than close ended schemes) is not available in
the ULIP scheme.

o The ULIP scheme, comes with a commitment to save and pay the premium in the future
years, which can make a person 'committed' which is not the case with MF, where it is in
the investors wish to save and invest further.

Conclusion
Life Insurance sector is continuously growing sector and still in India large number of people
are not insured and this sector has good potential to grow. As continuous increasing
contribution of service sector in GDP growth of Insurance Sector will play its crucial role in
future for the development of Indian economy. In insurance industry well defined guidelines
about ULIPs and increasing rationality decision making of investor increases the chances of
development of ULIPs over traditional insurance plans. ULIP serves all the benefits of MF,
but at higher cost. But at the same time ULIP also serves one of the important purposes of an
investor i.e. Insurance – financial support in future in case of casualty to investors’ life, which
provides it an edge over MF.

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References:
1. Insurance Regulatory and Development Authority, LIFE INSURANCE PRODUCTS-
Guidelines for Unit Linked Life Insurance Products, CIRCULAR NO:
032/IRDA/Actl/Dec-200, December 21, 2005

2. Silender Singh, Satpal, “Customer Satisfaction in Life Policies”, Southern Economist,

Volume Number 13, November 1, 2009

3. Karuna K, “Relevance of ULIPs as a Good Investment Tool” Insurance, Chronicle, The

Icfai University press, May 2009 (www.iupindia.org)

4. Pa. Keerthi, R. Vijayalakshmi, “A Comparitive Study On The Perception Level of The

Services Offered by LIC and ICICI Prudential”, Indian Jounal of Marketing, new Delhi,
Volume XXXIX, Number 8, August 2009.

5. Phalguna Jandhya, G. Naga Shridhar, “ULIPs likely to be cheaper by 10-15 pc – IRDA

cuts solvency margin by 20 bps”, Business Line, Business Daily from THE HINDU
group of publications, Friday, Jan 02, 2009.

6. Tanvi Varma, “Insurance may not be a regularly recommended instrument for the measly
returns that it has offered in the past. But with ULIPs this perception could change”, Out
Look, Money, Jan 15, 2006

7. Sunil Dhawan, “Tax relief: Here's what suits you best”, Outlook Money, February 04,
2009

8. C. John Williams, “A Comparative Study and Analysis of Unit Linked Insurance Plans
(ULIPs)-An IDBI FORTIS Perspective”, A Project Report submitted to ICFAI Business
School – Hyderabad, May 16, 2009

9. “India: The Next Insurance Giant”,

http://www.indiaprwire.com/pressrelease/insurance/200805079347.htm

10. “Financial Intermediation and Market”, Economic Survey 2009-10

[http://indiabudget.nic.in/es2009-10/chapt2010/chapter05.pdf]

Websites Visited
www.licindia.com www.bestinsuranceguides.com
www.iciciprulife.com www.iba.ie.com
www.bajajallianzlife.com www.irdaindia.com
www.sbilife.com www.esortment.com
www.reliancelife.com www.bimadeals.com
www.economywatch.com www.business.rediff.com

Various Brosures of Insurance Plans of various life insurance companies

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