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A study of consumer Preference and Satisfaction level with respect to ULIP policies of LIC

By: Shekhar V Sawant (9423309154) Shree Damodar College of Commerce and Economics Comba Margao Goa-403601 Email: sawant.shekhar@gmail.com

ABSTRACT
The Life Insurance Industry has become dynamic and challenging ever since the insurance sector has been open up for private players. All the companies stress very much on product innovation, product training, customer preference, etc due to the cut-throat competition going on in this industry. This research paper tries to throw light on different types of ULIPs (Unit link insurance plans) policies launched by LIC (Life insurance Corporation) during last few years and also try to understand the customer preference in investing in LICs ULIP policies. The article also throws light on level of satisfaction among the respondents in respect of LIC ULIP policies.

INTRODUCTION Unit linked life insurance products are those where the benefits are expressed in terms of number of units and unit price. It can be viewed as a combination of insurance and mutual funds. Their flexibility is evident in two features. One, they allow individuals to switch between funds. The second feature is that it allows for a larger number of withdrawals. Being transparent the policyholder gets the entire upside on the performance of his fund. Unit linked products are exempted from tax and they provide life cover. According to IRDA, a company offering unit linked plans must give the investor an option to choose among debt, balanced and Growth fund. As an investor you can invest in equities and debt. You can choose the option based on the risk appetite. If you opt for a unit linked endowment policy, you can choose to invest your premiums in debt, balanced or equity plans. If you choose a debt plan, the majority of your premiums will get invested in debt securities like gilts and bonds. If you choose equity, than a major portion of your premiums will be invested in the equity market. The plan you choose would depend on your risk profile and your investment need. Unlike conventional endowment plans, ULIPs do not guarantee a return, although your sum assured is guaranteed provided you have paid the premium. Unit linked life insurance products are those where the benefits are expressed in terms of number of units and unit price. They can be viewed as a combination of insurance and mutual funds. Their flexibility is evident in two features. One, they allow individuals to switch between funds. The second feature is that it allows for a larger number of withdrawals. Being transparent the policyholder gets the entire upside on the performance of his fund. Unit linked products are exempted from tax and they provide life cover. According to IRDA, a company offering unit linked plans must give the investor an option to choose among debt, balanced and equity fund. As an investor you can invest in equities and debt. You can choose the option based on the risk appetite. If you opt for a unit linked endowment policy, you can choose to invest your premiums in debt, balanced or equity plans. If you choose a debt plan, the majority of your premiums will get invested in debt securities like gilts and bonds. If you choose equity, than a major portion of your premiums will be invested in the equity market. The plan you choose would depend on your risk profile and your investment need. Unlike conventional endowment plans, ULIPs do not guarantee a return, although your sum assured is guaranteed provided you have paid the minimum premiums

The introduction of unit linked insurance plans has been possibly, the single largest innovation in the field of insurance in the past several decades. In the swoop, it has addressed and overcome several concerns that customers had about life insurance liquidity, flexibility and transparency. These benefits are possible because ULIPs are differently structured products and leave many choices to the policyholder. Hence as a customer, you must carefully consider whether you can make such a product work well for you. Broadly speaking, I believe that ULIPs are best suited for those who have a conceptual understanding of financial markets and are genuinely looking for a flexible, long term savings cum insurance cover. ULIPs were found more attractive when stock markets perform well as its performance depends on market. To understand how a ULIP meets the multiple needs of protection of both health and life and savings in the same policy, lets take the example of a 35-year-old man with two young children. With a premium of say, Rs.30000 p.a. he could begin with a sum assured of Rs.5 lakh, for which the life insurer would set aside a nominal amount of the premium to cover this risk. The balance could be invested in a fund of his choice, possibly a balanced or growth option. As the children grow, he might want to increase the level of protection, which could be done by liquidating some of the units to pay for a risk premium. On the other hand, if he gets a significant raise, he could increase the savings element in the policy by topping it up. The key to good financial planning is to understand ones current and future financial goals, risk appetite and portfolio mix. The next step is to allocate assets across different categories and systematically adhere to an investment pattern, so that they work in tandem meet ones requirements over the next month, year or decade. Because of their flexibility to adjust to different lifestage needs, ULIPs fit in very well financial planning efforts. As a systematic investment plan, ULIPs greatly diminish the hazards of investing in a volatile market, and using the concept of Rupee Cost Averaging allow the policyholder to earn real returns over the long term. REMEMBER THAT IN A UNIT LINKED POLICY; THE INVESTMENT RISK IS GENERALLY BORNE BY THE INVESTOR.

OBJECTIVE OF THE STUDY


1.
2. 3. 4.

To study and understand what are ULIPs. To know the different ULIPs of LIC. To understand the customer preference with regards to ULIPs. To find out the level of satisfaction of customers. To find out the most preferred ULIPs policy of LIC.

5.

Data and Methodology


Primary data is collected by visiting the bank and interviewing the concerned officials of LIC and the customers by conducting surveys in the state of Goa An open ended questionnaire was prepared based on objectives of the study and was administered on 50 respondents in state of Goa.

Analysis and interpretation


1.1 Analysis of Most preferred ULIP policy of LIC ULIP plans Fortune plus Profit plus Money plus Market plus Child Fortune No of respondents 05 10 18 13 04 10% 20% 36% 26% 8% Percentage (%)

Source: Primary data


2 0 1 8 1 6 1 4 1 2 1 0 8 6 4 2 0
e o rt u n

N o re o d n o f sp n e ts P rce ta e (% e n g )

p lu s

p lu s

p lu s

lu s e t p C h ild

ro fi

o n e

a rk

o rt u

n e

Table 1.1 signifies that maximum respondents have opted for Money plus ULIP plan of LIC as nearly 36% have taken the said plan. This is followed by Market plus which has been opted by almost 26% of the respondents out of 50 samples. Profit plus and fortune plus has been opted by 20% and 10% of respondents respectively. The reason for opting for the money plus is aggressive campaign carried out by the LIC and the overwhelming response it has received from public, although the performance of the said plan not yet impressive. It may perform well in the near future.

1.2 Analysis of the Source of information Source No of respondents 20 10 40% 20% 14% 10% 16% Percentage (%)

Newspaper T.V/Electronics

Friend/relative/Agent 07 s Hoardings Others 05 08

Source: Primary data


N of respondents o

Others 16% Hoardings 10% Friend/relativ e/ Agents 14% Newspaper 40%

T .V/Electronic s 20%

The above table shows the sources through which the respondents have come to know about the ULIP plans. Looking at the above table it is very clear that print media still dominates in giving publicity, as nearly 40% of the respondents have cited out that they have come to know about ULIP by newspaper. This is followed by 20% of the

respondents who have stated that they came to know through Television/electronic media. Very less percentage of respondents have said that they got the information on ULIP through friends, hoarding displayed on road side and others like agents of company etc.

1.3 Analysis of the Reasons for investments in the ULIP Reasons No of respondents 10 16 08 08 08 20% 32% 16% 16% 16% Percentage (%)

Flexible investment Tax benefit Policy term Premium payment others

Source: Primary data


16 14 12 10 8 6 4 2 0 Flexible investm ent 10 20% Tax benefit 16 32% Policy term 8 16% Prem iu m paym en 8 16%

others 8 16%

N of respondents o Percentage (% )

Table 1.3 reveals the reasons for making investments in the ULIP. Nearly 32% have opted for ULIP in order to take tax benefit. Whereas 20% have opted for it due to its flexibility and dual benefit of Investment and Insurance coverage. The negligible

percentage of respondents i.e. 16% of the total respondents have taken the said plans due to Policy term being long term, premium payment and other reasons such as easy payments by ECS or through credit card .

1.4 Analysis of Satisfaction level of respondents Satisfaction level Satisfied Not satisfied No of respondents 43 07 85% 15% Percentage (%)

Source: Primary data

As far as the satisfaction level of the respondents is concerned nearly 85% of the respondents have stated that they are happy with the ULIP plans they have opted for although the performance of the some the ULIP policies of LIC is not encouraging. Only 7% of the respondents are not satisfied with the plans they have opted for. Of this maximum were those who have opted for money plus policy of LIC.

Conclusion
Unit Linked insurance plans have proved quite appealing to the consumers given the buoyancy of the Indian stock markets over the last few years. In the falling interest rate scenario, it is becoming increasingly difficult for financial institutions and Banks to offer guaranteed returns to the investors. This has brought about a complete change in the expectations of the investors. There is now an increasing acceptance of variable returns offer by unit link insurance products. When we look at the preceding analysis it is infer that maximum consumers have opted for Money plus plan, followed by Market plan with the expectation of earning higher returns on these polices at the time of maturity. It is also clear that the print media is still dominating over other media in terms of providing information to the general public on various plans. It could also be concluded that majority of the people go for ULIP in order take the income tax benefits and due to its flexibility and mutual benefit involved. As far as satisfaction level is concerned, it is found to be very high among those who have opted for such plans. The very features that make ULIPs attractive in terms of versatility and flexibility are what make them complicated and user-unfriendly. In a nutshell, ULIPs cannot take place of term insurance plans that provide a much larger, effective cover. Vis- a vis mutual funds, ULIPs are poor investment vehicles, as in the initial years, a lot of the premium gets allocated towards actuarial costs and very little invested barely giving ou back your capital at the end of three years. However, in the long run of say 10-15 years and more ULIPs give better returns, as the expense ratio comes down over that time. The present situation is that ULIPs is attracting the investors especially the LICs plans are very popular even though the investments in such plans involves a very high risk. Thus, we can say that ULIP is an investment as well as insurance because, it allows investors to invest indirectly in equity stock where risk is high, however returns are also high. It is insurance as it covers life insurance, and coverage depends on the amount of premium paid. This shows that the future for such plans are very bright if properly framed by the company taking into consideration the needs and wants of the consumers.

References:
Dumblekar Vinod (2001): Building customer Relationships through call centres in Banking and Financial Services, CRM in Financial Services, Tata Mc Graw Hill, New Delhi Jawaharlal U (2002): Insurance Industry Emerging Trends, ICFAI

University Press, Hyderabad. Gupta Hima (2004), `Growth of Life Insurance Sector, Insurance Chronicle, pp 25-29.

Websites http://in.answers.yahoo.com http://www.acronymfinder.com http://www.scribd.com http://wikipedia.com www.licindias.com