Authored by Santosh Agarwal
The statistics around life insurance penetration rate in India do not reflect a good picture. The life insurance penetration rate in India continues to be one of the lowest across the globe at 2.74 percent as per the latest annual report by the Insurance Regulatory and Development Authority of India (IRDAI).
The life insurance penetration had gone up from 2.15 per cent in 2001 to 4.60 per cent in 2009. However, since then it has exhibited a declining trend.
Current State of Life insurance in India
As per the analysis of government and industry data, over 1 billion Indians are not covered under any form of life insurance. Talking of those who are covered under a life insurance policy, an average Indian is insured of roughly 8 per cent of what may be required to protect his family from financial crises in case of demise of the life insured. In our country, the mortality protection gap - the difference between the resources needed and the resources available - is significantly high. India has the highest protection margin in the Asia Pacific region at 92.2 percent.
Most Indians have protection worth just Rs 7.8 against a required value of Rs 100. The difference in the required protection and current protection makes for a gap of Rs 92.2.
Lack of awareness around what is an adequate life insurance cover for an individual increases the mortality protection gap. It is important to secure your life by not only buying an adequate health insurance policy but even term insurance that protects your loved ones in case of your untimely death. Essentially, term insurance is there to give your dependants financial protection if you die within the policy term, usually as a lump sum or staggered payout depending upon your specific needs and requirements.
Saral Jeevan Bima - Attempt to Narrow Down Protection Gap
After moderate success with its standardised health product Arogya Sanjeevani and Covid-specific covers, IRDAI has now come up with a standard life insurance product – Saral Jeevan Bima. For the first-time buyers of life insurance, the plan will be a boon since the product is the same, regardless of the insurance company offering it.
An important reason for introducing a standard life insurance plan is that the current life insurance products available in the market are different and quite complex, and it is difficult for the common man to understand the various inclusions and exclusions of the plans.
The product is expected to play a vital role in narrowing down the protection gap in India as a large part of the Indian population belongs to lower-income class and the product targets the same class of people. The Saral Jeevan Bima primarily targets “Bharat” where rural India resides as a major population of India leaves in rural parts of the country. In these places, the awareness of people around the importance of term life insurance plans is significantly low. With this plan, the regulator aims at increasing the life insurance penetration level mostly amongst the people with low income.
Being a standard life insurance product, the Saral Jeevan Bima plan is rightly priced to bring maximum people under the life insurance protection umbrella. While looking for a life insurance product, it is often observed that people belonging to the self-employed category are not able to secure a comprehensive term life insurance plan. This is mostly due to non-availability of standard/uniform income documents. The standard term life insurance product can be bought by any individual without providing uniform income documents and this is mostly due to lower ticket size.
As people’s interest in life insurance, especially term plans for pure protection has grown, the standard product will help those who cannot devote adequate time and energy to make informed choices and find it difficult to select the right product. The product will be available on digital channels with up to 20 percent discount and it would be easier for the customers to compare and buy the product with utmost ease.
Yet another important feature of the plan is that it can be bought in easy monthly instalments through online insurance marketplaces. Prominent online insurance market places have started offering insurance products to customers through easy monthly instalments wherein the customers do not need to pay the entire premium as a lump sum and can rather pay the premium in monthly instalments. This, apart from increasing affordability, helps people buy an insurance policy with an adequate sum assured.
The monthly payment mode under Saral Jeevan Bima plan will definitely help in increasing the life insurance penetration rate and distribution of life insurance products in India.
Santosh Agarwal is CBO-Life Insurance at Policybazaar.com