Kathmandu: Although annual moneyback life insurance plan initially looks beneficial for both the insured and the insurers, it is actually a loss-making deal for both parties. As the policy term passes, the insurer has to bear heavy burden of risk and return to the policyholders.
On the other hand, even the money-back is provided in various installments prior to the maturity period, the insurer must bear the risk on full sum assured till the maturity date. For example, a policyholder who has purchased a plan with Rs. 10 lakh sum assured for a term of 20 years gets of 5 percent of sum assured annually from very next year. The 5 percent of the sum assured amounts to Rs.50 thousand annually.
Similarly, within 10 years 50 percent of the sum assured is paid-back by the insurer to the policyholder. But the death risk equal to sum assured Rs. 10 lakh remains with the insurers till the date of maturity.
Furthermore, if the policyholder has opted for an accidental death benefit, then the burden of risk coverage doubles to Rs.20 lakh. Apart from it, additional amount is spent by the insurer for agency commission and incentives on full annual premium and reinsurance fee on full sum assured. Beside that it also incurs operating expenses of the insurer.
In practice, most of the life insurers have suggested their policy holders to adjust their annual money-back to annual premium payment. It means if the policyholder has to pay Rs. 75 thousand annual premium, he has to manage Rs.25 thousand only, rest is settled from the annual moneyback.
Due to excess loss in the product, the life insurers are unable to accumulate enough fund from this plan for their life insurance fund. The lower amount of saving from the sale of such products results poor policyholder bonus rate.
In other endowment plans, even though the insurance company has to bear the risk on full sum assured, it does not have to return the sum assured annually like in the annual profit insurance plan. The insurance company is getting the opportunity to invest and earn interest by depositing the amount received as insurance fee from the policyholder for the whole policy term.
