Why Insurance? Term insurance is the purest form of insurance – it provides cover only for the risk of death of the life assured. If the life assured dies during the policy period, his legal heirs receive the ‘sum assured’ under the policy. If the life assured survives the term, there are no returns. The premium paid in a term assurance plan is equal to the mortality premium. For all other insurance products, which combine investment and the risk cover, an amount equal to mortality premium is deducted in any case for covering the risk. The best thing about this plan is its cost advantage. Due to this, one can afford to secure an adequate amount of coverage. When you earn more and accumulate more assets, the stake get higher and there is more to protect. Luckily for Indians, the opening up of the insurance sector in 1999, and the explosion of insurance products has helped Indians in this respect. The survey indicates that the insurance penetration seems to be increasing, a likely fallout of the opening up of the insurance industry to Private Indian as well as foreign companies. In 1999, the sector was opened up and the monopoly of the Life Insurance Corporation in that particular business and that of the General Insurance Corporation, with its four subsidiaries, in the non-life insurance business has made way for stiff competition. At last count, there were 21 life insurers and 20 non-life insurance companies operating in India. With each of them vying for a share of the market and hard selling their products, the penetration has increased. Look at life covers. Compared with almost 60 percent of the population without a cover in 1998, the number has gone down to about 22 percent now. We are using insurance more for protection than earlier with about 60 percent of the population now taking term insurance covers compared with a rather low 29 percent a decade ago. There are other problems too. Overall, we are terribly underinsured. While minimum life cover should be at least five times our gross annual income, which has about doubled over the decade, the average insurance covers has increased from Rs.11.39 lakh to Rs.13.31 lakh – marginally at best. Worse, 56.7 percent of us have covers less than Rs.10 lakh, which is survives and earning member. By that measure, we have insured ourselves for far less than what we need to. One thing, however, we are becoming aware of is health insurance. From 15.8 percent who had health insurance, the number has trebled to 47.7 percent. Given the rising healthcare costs that still leaves about half the population concerned completely exposed to risk even though they can well afford to protect themselves against it. The biggest problem, however, seems to be the attitude towards insurance. We are yet to shake off the hangover of the pre-liberalization days, when insurance, because of the tax breaks it afforded, despite low returns, was a favored destination for investment. Today, that mindset has just become stronger with 57.6 percent of use citing tax breaks as the reason to buy insurance as opposed to 26.2 percent in 1998. Simultaneously, however, 63.4 percent of us have said that we buy insurance for protection, a number vastly better than the 35.10 percent 10 years ago. Further, with a third of us saying that it is an easy way to invest, it is clear that it is going to be difficult to change our attitude towards insurance. The idea appears to be that insurance is something you buy for returns and get some protection in life.
Pages to are hidden for
"insurance"Please download to view full document