ALIP: Giving life to endowment policy

We started in 2003 and lodged 3,000 policies assigned to us for registration with LIC. However, LIC registered about 1,500 polices and held back the balance. The company moved the IRDAI and the regulator directed LIC to register all policies of the company. Then LIC issued a circular to all its branches not to register assigned policies. The company then moved the Bombay High Court against the circular. The Court gave a favourable verdict to us covering all the aspects of Insurance Act and Section 38 which deals with assignment of policies. It said the policyholder has the right to assign policy to a third party. LIC challenged the judgement in the Supreme Court. The company was joined by IRDAI as second respondent in the Apex Court which also dismissed the LIC petition. Following this, the web-based ALIP was launched. The services of Beacon Trusteeship was availed to give more confidence to policyholders. Beacon is managed by SEBI registered trustees.

ALIP is an alternative to the surrender of policies. People having endowment policy of LIC with fixed maturity date can assign it to the Trust. When people lose interest in their endowment policy, the only option is to surrender it to LIC and lose the life cover. Under ALIP, the policy holder can assign it to the Trust and recover the surrender value even while continuing to get the life cover. The entire process of assignment can be done online. Once the data of the policyholder is filled and verified by the backend office, it is emailed back to the policyholder who has to sign it and send it back to us. After the entire process is done, the policyholder will get the benefit of life cover without paying the premium, which will be paid by the Trust. Currently, we are accepting premium paid policies of 6-7 years and in next phase we will also accept 4-5 years premium paid policies. Interestingly, one of our customer’s assigned his policy in 2019 and got ₹15 lakh as surrender value. When he passed away in 2022 his nominee received ₹39 lakh.

The market size is huge. We have processed 10,000 policies worth ₹50 crore under ALIP. In the next five years, we expect it to touch ₹5,000 crore. We have currently appointed 40 channel partners covering 40 cities and another 100 we will add by this year end. Our aim is to have at least 200 channel partners. We have an option to provide an alternative to surrender of postal life insurance policies. In fact, some of the investors want to liquidate the life insurance policy to us and invest in mutual fund even while continuing to get their life cover.

LIC is the issuing authority of the policy. Initially, it is a contract between the policyholder and LIC. On the back of every insurance policy there are terms and conditions for assigning the policy to raise funds. Once assigned, it becomes the contract between the policy holder and assigned company. LIC registers the new contract and issues registration letter to the assigned company.

We are not an insurance company as per the definition of IRDAI. We come in between the insurance company and the policyholder. It is a private financial contract between us and the policy holder. That is exactly why we cannot be regulated by SEBI, RBI or IRDAI. The Supreme Court has also held the LIC policy as a movable and transferable asset. If the assignment is not registered, SC has said it is an infringement on the rights of the policyholder.

It is a custodian and holder of the asset on behalf of the beneficiary. It will pay out the benefit received from LIC to the nominee in case of any eventuality. The Trust has AAA (Structured Obligations) rating. LIC has a sovereign guarantee and there is no question of default. The Trust has no right to generate any fund or create any liability. All the assigned policies are put together to create PTC (pay through certificates) of ₹1 crore and sold to investors. The Trust collects the money from PTC holder for paying the premium of the policy. PTC investments are tax free in the hands of investors as they are received from insurance company.