Life Insurance: Why Indians are living dangerously
How many Indians are covered by life insurance? According to Irdai’s Handbook 2016-17 (Table 9A), 32.81 crore of policies are in force in the books of life insurance firms in India.
Even if we assume that a few lakhs of policies were revived during the year, the total number of in-force policies will not be more than 33 crore. Since many customers are in possession of multiple policies, the total number of people possessing at least one in-force policy will not be more than 30 crore. If we consider those people who are covered by group policies and PMJJBY policies and not by individual policies, even then the number of Indians holding at least one in-force life insurance policy is not likely to exceed 40 crore (with PMJJBY covering 5.35 crore Indians so far). Indians are grossly underinsured So how many people are insurable today? According to most estimates, the figure will be around 80 crore. So, 40 crore Indians have not yet been brought under the ambit of life insurance.
In developed countries, at least 90% people are covered by life insurance. Besides, they enjoy various other social security benefits. Now, the more important question is whether Indians who are considered as insured are adequately insured. If we take the Handout’s Tables 9A and 10A together (in respect of linked and non-linked life policies), we get the figure of sum assured per policy. The average sum assured is just Rs 3.01 lakh. Even if we assume that many customers buy more than a policy, on an average an Indian is certainly not covered beyond Rs 4 lakh. What is the value of that money today? If we keep the money in a bank (that is what the dependants of a deceased policyholder generally does), it will not fetch more than Rs 28,000 a year or about Rs 2,300 per month! To run a family of three to four members with that money is extremely difficult. When a government social security scheme such as PMJJBY is offering an insurance cover of Rs 2 lakh per person, the much more affluent Indians are getting themselves insured for Rs 3-4 lakh only. That means, on an average, Indians are grossly underinsured even today. Too many people buying Ulips Life insurance industry has brought a plethora of useful insurance products for all life stages and for all market segments but customers have not yet made full use of these products.
Far too many customers are buying only unit-linked insurance policies (Ulips) which help in accumulation of wealth. Most Indians primarily need life insurance as savings and protection tools. As more than 90% Indians work in the unorganised sectors, they need to build their risk-free savings corpus through life insurance. They also need protection products like pure term insurance. Although LIC continues to get more than 99% of its business by selling traditional products, the private companies as a whole got 42% of their business by selling Ulips only in 2016-17. A leading private insurer got more than 79% of new business from Ulips. The problem with Ulips is that as soon as people get good returns from their investments, they surrender the policies (the surrender charge being negligible) and insurance cover ceases to exist for them. Term insurance is a good product but that gives money only under one contingency—death. People need to buy other insurance products which provide money (without any uncertainty) in other contingencies as well. So, it is pretty clear that Indians are grossly underinsured and that means they are living dangerously.
The writer is Manager (Legal), LIC of India, Asansol Division. All views expressed here are author’s personal