Loyalty addition in Life Insurance is a relatively new term but somewhat similar feature. Unit linked Insurance policies used to be the hottest life insurance products till last year. In fact they were on par with mutual funds. But they way these policies were structured and sold use to create a lot of controversies. They were insurance products but were sold as investment products and in the backside, loaded with the charges. Insurance regulatory and development authority of India took many steps to control it. And finally when it changed the entire structure of unit linked insurance policies, it almost ended the sale of ULIP policies in India. It was a huge set back for these mushrooming life insurance companies which were getting 80 to 85 per cent of their business from these policies.
Loyalty addition in Life Insurance represent a huge change in the approach of Life Insurance companies in India. Life Insurance till last year was more about selling ULIP policies and less about servicing those policies. IRDA bought massive changes in order to restore sanity in the Life Insurance Industry. They structured the product in such a way where servicing a policy became as important as selling it.
Loyalty addition in Life Insurance basically represent this shift. It is a kind of bonus which is given to the policy holder for encourage a policy holder to remain invested in the policy. It is basically awarded as percentage of annual premium. It could vary with company to company and policy to policy. It could be something like 5 per cent of the annual premium. It is either paid at the policy maturity along with the maturity benefit or at regular intervals like every 3 or 5 years.
Loyality addition in Life Insurance is to ensure that insured is continuously remain invested in the policy. Loyalty additions are being offered on most of the life insurance policies currently available in the market like Unit Linked Insurance policies (ULIPs) as well as endowment policies. But that doesn’t mean that investors should stop looking at other features of the product like charges and get carried away.
Loyalty addition in Life Insurance mean that now insurance companies have started awarding long term commitments.
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