Guaranteed insurance plans find favour amidst falling interest rates

Guaranteed insurance plans find favour amidst falling interest rates

The life insurance industry has seen muted growth for the first-year premiums in the first six months of the current financial year. However, guaranteed plans offered by life insurance companies have seen strong response from the policyholders.

According to experts, volatile equity markets during the start of the financial year and declining interest rates on bank fixed deposits (FDs) are few reasons why policyholders have been attracted to guaranteed plans.

In the last few months, insurers like IDBI Federal Life Insurance and Canara HSBC Oriental Bank of Commerce Life Insurance have launched guaranteed plans. Market participants also say that several big players in the life insurance industry are also planning to come out with products offering guaranteed maturity benefit along with market linked returns.


Vivek Jain, head – Investments,, says, since the outbreak of the pandemic and sharp volatility in the equity markets, investors were not keen on market-linked products. This is one of the reasons why there is a demand for the guaranteed life insurance plans.

Officials also say that declining interest rates on bank FDs are another reason for risk averse investors to look at guaranteed plans. “Some of the top banks are giving FD rates of 5.4% for five years and returns are taxable in the hands of investors—effectively bring down the returns. But in guaranteed plans, investors can get tax free returns under Section 10 (10D),” added Jain. Guaranteed insurance plans offer returns in the range of 5.5-5.7%, says the officials.

Guaranteed plans are non-participating products and offers benefits that are guaranteed in absolute terms at the beginning of the policy. According to the market players, these kinds of products are preferred by customers who have a low risk appetite and are willing to accept lower but guaranteed returns.

Vighnesh Shahane, MD & CEO at IDBI Federal Life Insurance, says, “There are two product categories where there is traction, one is protection and health, and the other is guaranteed non-participating savings products. The reasons why guaranteed plans are picking up is because of falling interest rates as investors want to lock-in money at higher interest rates and avoid the reinvestment risks.”

Market participants also say that even in the next few months investors will be attracted towards guaranteed plans from life insurance companies. “With markets at all-time high, there are expectations of correction in markets. Also, we have seen second wave of novel coronavirus in Europe, so still there is some risks. In such situation, investors will avoid putting money into the market linked plans and look for investing in guaranteed products,” concluded the senior official from the leading insurance company