In a move that can bring down premium on life insurance policies, Aceso Endowment Services has launched ALIP (Assignment of Life Insurance Policies), one of its kind product for LIC policyholders, contemplating to surrender their policy.
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Under ALIP, LIC policyholders will get the entire surrender value of their policy, after assigning it to Aceso’s special vehicle purpose India Endowment Policy Trust, and get the benefit of life cover, without paying any premium. If surrendered to LIC, the policyholders lose the life cover benefit, and get only the surrender value.
The Trust clubs the assigned policies, to issue pay through certificate (PTC), for attracting investment from third parties.
The company clubs assigned policies worth ₹1 crore, and issues PTCs, which are priced at Internal Rate of Return 7.75 to 8 per cent per annum, based on maturity above 12 years of holding, from the date of investment (benchmarked to government securities at an interest rate of 7 per cent, and one per cent premium). The future premium, of the assigned policies will be paid by the trust.
In an untoward circumstance of insured person’s death, the nominee will get the claims paid by LIC, after the Trust deducts the investment made on the assigned policy, and premium paid to ensure a pre-determined return of about 9 per cent to the PTC investor. The company has tied-up with 40 channel partners, and targets to add another 100, by the end of this year.
The concept of ALIP, which is more prevalent in the UK, and Australia, was challenged in the Bombay High Court, and the Supreme Court, by LIC, and has received favourable ruling.
Ketan B Mehta, Director, Aceso, said it is a win-win product for all the players in the eco-system, with LIC getting to renew the policy, and policyholders gaining life insurance benefits even after realising surrender value of their policy, while LIC agents continue to earn their commission.
As and when the number of assigned policies increase, LIC can consider bringing down the premium of its insurance product, over a period of time, he added.
The income from the product, are tax-free for investors, and has sovereign guarantee from LIC. The PTC itself is rated AAA by Crisil.
The scope of business for ALIP is huge, given the value of LIC surrendered policy was ₹1.33 lakh crore last fiscal, against ₹1.12 lakh crore in FY23. The company targets to attract premium paid policies of six to seven years, and consider three years of premium paid policies, as the business grows. The market size of this business, can be worth ₹5,000 crore to ₹10,000 crore in three years.
ALIP has also helped the insurers, to increase the persistency ratio which has been a major concern of IRDA.