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This article is more than 1 year old.

Protection gap very high in India even after term insurance available for as low as Rs 1,000/month

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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 IRDAI.

Protection gap very high in India even after term insurance available for as low as Rs 1,000/month
Authored by Santosh Agarwal
If you are not covered under a life insurance policy, you are not alone. 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 percent in 2001 to 4.60 percent in 2009. Since then, it has exhibited a declining trend up to the year 2019.
Current State of Life insurance in India
As per the analysis of government data and industry data, at least 100 crore Indians - more than the entire population of Europe and 75 percent of India’s entire population - are not covered by any form of life insurance.
And talking about those who are covered, an average Indian is insured of roughly 8 percent of what may be required to protect a family from financial shock following the death of the breadwinner.
In India, the mortality protection gap - the difference between the resources needed and the resources available - is also considerably high amongst those insured under some form of life insurance cover. India has the highest protection margin in the Asia Pacific region at 92.2 percent. This means having savings and insurance of just Rs 7.8 for every Rs 100 needed for protection, leaving a protection gap of Rs 92.2.
Lack of awareness around what is an adequate life insurance cover for an individual increases the mortality protection gap.
People often forget to take into account the outstanding loans on the name of the policyholder, the significantly increasing inflation, and most importantly, one-time expenses like children’s higher education and marriage and of course, the retirement needs of the partner when calculating the sum assured of their life insurance policy. Under such circumstances, the lack of adequate life insurance cover makes people prone to high financial instability.
Need for Pure Protection Plans – Term Insurance
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 due to any such virus. Term insurance is undoubtedly one of the most basic life insurance plans available in the market these days.
A term insurance cover is basically a no-frill plan that offers the highest life coverage at most affordable prices. 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.
A little known fact to people outside the insurance world: term insurance plans even address death due to communicable diseases and epidemics. All in all, term insurance plans are a common solution to all the aforementioned problems.
Term Plans Cheapest in India
Term plans in India are amongst one the cheapest across the globe. If we compare the prices of term plans in India with other developed countries like the US, Dubai and Singapore, the prices in India are significantly lower. Competition in the Indian insurance market space is a key reason for driving prices downwards.
As we look at the data, at an average, the premium rates of term policies are about 30 percent higher in foreign countries than in India.
For a 30-year old individual buying term insurance with Rs 1 crore sum assured and for a cover-up to 70 years, the premium comes around merely Rs 1,000 per month. While for the same term plan, someone in the USA or Singapore needs to pay up to 30 -40 percent more than the prices in India. If someone wants to go for Rs 2 crore sum insured, the premium comes around Rs 1,600 – 2,000 per month.
On an average, Rs 1,500 per month is a very nominal amount that we usually spend on things for our entertainment. However, with this minimal amount i.e. Rs 1,500 one can easily buy a term plan worth Rs 1 – 2 crore sum assured by which one can take care of the financial needs of the family in case of the sudden death of the policyholder.
By providing life cover at considerably low premium rates, insurers in India plan to educate consumers that buying a term plan is vital and should form a significant part of their financial portfolio.
Santosh Agarwal is CBO- Life Insurance at Policybazaar.com. Views are personal
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