Market’s insurance preference shifting

Buying life insurance nowadays is, in a way, like buying cell phones.  There are many types to choose from and you can have more than one if you like.

Over the past few years, a type of insurance plan that combines protection with mutual fund-like investment has become popular, particularly among young people from the middle income segment. Called variable life insurance, it is a plan wherein the premiums and the death benefits are flexible and the cash value depends on the performance of the funds, insurers say.

In traditional life insurance plan, the premiums, cash values and death benefits are fixed and it is the insurance firm that decides where to invest the premiums.

Josephine Torrijos, who has been in the life insurance business for more than three decades, observed a shift in the preference of the market toward variable life.

“When I would offer the traditional plan, they would ask for variable life instead,” said Torrijos, who is an agency sales director at Cocolife. “I discovered that the market for variable life consists of those from age 25 to 45, the young professionals who are exposed to personal finance seminars.”

Buyers of variable life insurance are attracted by the prospect of profiting from the upside of financial markets and having much welcomed flexibility. According to the website of the Philippine Life Insurance Association, with a traditional policy, the death benefit is limited to the face amount specified in the policy. With variable life, the death benefit is the face amount plus the build-up of any cash value. The holders may increase their insurance coverage and investments by paying additional premium.

Singapore-based journalist Pearl Bantillo said she had bought variable life insurance on a recent trip to Manila to add to her other insurance plans. “For me, it’s just an investment where I don’t need to do anything and money will earn better than if I keep it in a savings account.”

The popularity of investment-linked insurance makes Generali Pilipinas, which has erstwhile been focused on traditional life insurance, to venture into variable life as well.

“We will have to go into that sometime next year,” said Generali Pilipinas president Renato Vergel De Dios, hoping that Generali will benefit from the growing network of bancassurance partner Banco de Oro.

He said selling of insurance through a bank’s network has enabled insurers to easily tap the market.  And curiously, the insurance industry has been selling more investment-linked products than the traditional protection-type products.

“Interest rates are so low. People are always looking for where can they get more bang for their buck,” ” Vergel De Dios said.

Rein Hermans, president and chief executive of AXA Philippines—a joint venture between Metrobank and the AXA Group—believes that the market for life insurance will continue to grow steadily and investment-linked products will likely outperform growth of the life insurance business.

“If we assume a growth rate of 12 percent for total life insurance premium in 2010 to 2015, investment-linked insurance might be growing by 15 to 18 percent per year.”

He attributed the good outlook for life insurance to the positive economic development in the country and the increase in income of the mass affluent segment of the population.

There’s an increased public attention to future income and large future expenses, like education, making life insurance a more popular choice for long-term savings.

Certainly, investment-linked insurance is, first of all, an insurance product, which allows plan holders to manage their financial future by adjusting the benefits of the product to their long term financial needs and to protect them from income loss and/or medical expenses. Basically if the product is rightly fit to the needs of the holder, it provides money when you need it.

But then, investment-linked insurance products are also being used as medium- to long-term investments. The returns for long-term investments in a single premium product are mostly higher than in competing products, provided the plan holder remains invested for about seven years. Variable life insurance isn’t without risk, though. The return is proportionate to the level of risk one can tolerate.