As per the Swiss Re sigma report, life insurance penetration is only 2.7 percent of the country’s gross domestic product.
In the Union Budget 2014, life insurance companies made a plea to the government to make term insurance mandatory for all salaried individuals. Taking a cue from the motor insurance third party product that is mandatory as per the Motor Vehicles Act, 1988, life insurers wanted pure protection products to also be made compulsory. But the Budget made no such provisions.
Insurance continues to be a push product in India with most customers preferring an endowment or money-back product that offers the facility of getting the premiums as a lump sum (with some bonuses, if any) once the policy term is over. However, customers do not realise that unlike a term cover, the protection element in other insurance covers is much lower.
According to an earlier report by global reinsurer Swiss Re, there are big gaps in insurance coverage (pure protection) in Indian households. The mortality protection gap report for Asia Pacific by Swiss Re has found that the gap in India was $8,555 billion in 2014.
The study said the sum insured per working person with dependents in India was $2101 in 2014 (about Rs 1.3 lakh), which is much lower than other APAC countries like Australia, which has a sum insured of $303,401 per working person with dependents. Per working person, the protection gap was $35,181 (about Rs 22 lakh) and this has seen a 10 per cent CAGR growth from 2004-2014.
It is estimated that protection as a portion of the life insurance industry’s portfolio is less than 20 percent. While there has been an increase in the term product sales in the past two years, the absolute numbers are still low.
“We have been trying to encourage customers to buy pure term especially since they are usually the cheapest products as well. However, overall response is lukewarm since policyholders expect some money back at the end of the term. Some mandatory element will be helpful,” said a senior life insurance official.
As per the Swiss Re sigma report, life insurance penetration is only 2.7 percent of the country’s gross domestic product. Overall, insurance penetrations stood at 3.44 percent while the world average is 6.23 percent. While the Pradhan Mantri Jeevan Jyoti Bima Yojana has helped deepen the reach of the pure term product at Rs 330 premium, renewal rates of the product have not yet been disclosed.Considering that there is a standing demand from the life insurers to either incentivise pure term products with tax sops or make it mandatory, that could be the blessing in disguise for policyholders as well as insurers. Whether it will subsidised further, considering online term is among the cheapest products, is a question that remains to be answered.
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