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What is the Life Insurance Penetration in India?

dateKnowledge Centre Team dateAugust 13, 2021 views234 Views
Life Insurance Plan | Best Life Insurance Plan | Invest 4G

Insurance has been one of the most useful financial support solutions, especially for emerging economies. However, the perception of insurance in a growing economy like India has been marred with misconceptions and a lack of awareness.

The year 2014 marked a significant milestone in insurance presence in India. The central government introduced multiple economic inclusion policies to bring the masses into the fold of financial protection. These progressive policies ultimately lead to personal accident and health insurance being available as social security schemes.

Insurance Penetration & Density in India

Quite often insurance is dismissed as a morbid product or thought rather than a product of financial safety. Another side of the perception is that it is something designed for the affluent.

Both sides of thinking ultimately leave a large section of the society prone to losing financial status due to contingencies like illnesses, untimely death or natural calamities.

Insurance penetration refers to the ratio of collected premium to GDP while density refers to per capital premium collection. Both measures indicate the acceptance and development level of the insurance market in any country. For India, these numbers stand at 2.82% and USD 58 for life insurance, while general insurance, which includes health insurance plans, stands at 0.94% and USD 19 per capita. (as per 2019-20 IRDAI Annual Report)

Although these numbers have been growing steadily over the years, India still ranks among the bottom 10 for these figures. Indicating that Indian markets have much farther to go and faster if we are to keep up with the world.

This applies to both general and life insurance plans.

Do You Need Insurance?

One of the biggest questions you could ask to postpone your insurance decision indefinitely is whether you need insurance. The answer should usually be yes. However, the next question is sure to stump you clean off the intended path.

So, let’s first make the order of questions clear. The correct line of questions would go something like the following:

a) What kind of insurance do I need?
b) How much insurance should I have?

First of all, not everyone will need all different types of life or general insurance covers. For example, if you are an individual who is below 18 years of age, you may only need health insurance coverage.

Second, the amount of life, health, or general insurance cover you will need will depend on the following two factors:

  • Your financial status
  • The financial worth of your insurable assets

Thus, you can be more specific with your next line of queries, such as, ‘which insurance cover should I have?

Types of Insurance Plans

Technically speaking insurance plans only have two classifications. However, in common usage you will face three types of insurance plans:

a. Life Insurance plans
b. Health insurance plans
c. General insurance plans like motor, house, etc.

Why do you Need a Life Insurance?

Life insurance need is one of the most complex to estimate. The first thing to understand is that the purpose of life cover is to protect your family and ‘their’ financial goals. Thus, an adequate life insurance cover will help you achieve:

i. Long-term financial safety for your family’s household (living) expenses
ii. Pay-off ongoing debt
iii. Save money to meet child’s important future goals

Although you may feel that you need multiple complex calculations to estimate the real financial safety need for your family, it is rather easy. If you have a regular income, you can easily estimate your eligibility. The source of income could be any, rental, interest income, salary, or business.

In general, a life cover of 10 to 15 times your annual income is sufficient to provide for the three factors for your family. For example, if your annual income is Rs. 10 lakhs, you can get a life cover between Rs 1 crore to Rs. 1.5 crores for the complete financial safety of your family.

Term Insurance & Other Protection Plans

However, you should know that for this purpose you only need a protection plan like term insurance cover, for the following reasons:

1. Simple to understand and operate

2. Inexpensive, i.e., even a single premium amount for a 30-year policy may be as low as 1% of the life cover amount for a 30-year-old.

3. Can provide reliable and long-term regular income to your nominees. iSelect Star term plan from Canara HSBC Oriental Bank of Commerce Life Insurance gives the option to divide the sum assured so that your family can receive inflation-adjusted regular income pay-out as well as the lump sum money.

4. Easy to secure a large sum assured amount

5. Adding other protection plans like accidental disability cover and terminal illness cover gives added safety to your family at a nominal additional cost

Few term policies like iSelect Star Term Plan offer terminal illness cover as an inbuilt default cover with the term policy without any extra premium cost. Thus, the best term insurance policies can resolve your financial protection need for the family easily.

Other Plans for Other Purposes

While a term insurance plan is designed for protection, other life insurance plans serve other purposes and financial goals. For example:

1. Unit Linked Insurance Plans (ULIPs)

a) Gives multiple fund options for investment including equity funds
b) Use this plan to build wealth or meet any financial goal
c) Great for long-term financial goals
d) Can help you build a tax-free corpus

2. Child Plans or Child Education Plans

a) Perfect for investing in your child’s higher education and marriage goals
b) Use the goal/premium protection feature to ensure that your child has the financial support you intended even after your untimely demise
c) Usually, tax-free maturity, except in the case of ULIP plans where your annual investment is more than Rs. 2.5 lakhs. Then it will become a capital asset and taxed as such.

3. Pension or Annuity Plans

a) Designed to convert lump sum money into safe and long-term regular income
b) Help you generate pension after you retire or even before retirement

4. Endowment and Moneyback Plans

a) Safe long-term investments
b) Best for wealth preservation as the returns are tax-free and usually closely follow the inflation
c) Best for investing in important goals
d) Can also have a goal protection feature

Tax Saving in Life & Health Insurance

Life and health insurance plans also help you save tax. Almost all life insurance plans offer tax exemption and deduction under section 80C, so far as your investment into the plans follows:

i. Annual investment less than 10% of policy’s base sum assured
ii. Annual investment less than Rs. 2.5 lakhs in case of ULIPs (for plans purchased on or after 1st Feb 2021, no limit for earlier plans)

Similarly, health insurance plans provide your tax-deduction opportunity under section 80D. The premium you pay can reduce your taxable income by up to Rs 1 lakh in a year.

i. Deduction for your family - self, spouse, children under 25 years of age
ii. Deduction for your parents

The deduction limits are dependent on the age of insured persons:

i. Up to Rs. 25,000 if aged below 60
ii. Up to Rs. 50,000, if 60 or above

Thus, using insurance can not only save you and your family from financial hardships due to mishaps but also give you tax benefits. Using correct and adequate life and health insurance plans will also help you look after your family’s future goals while protecting them from your untimely demise.

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Frequently Asked Questions (FAQs) Related to Life Insurance Policies

The premium is one of the most important factors to consider before buying a life insurance policy. Many people buy a life insurance policy with a high sum assured but are unable to process the premiums for the entire premium payment tenure. You can get a better idea of the premium outgo with the premium calculator available in the 'Tools and Calculator' section of

Life insurance plans come with several riders which increase the efficiency of the policy for the buyer. For instance, if you have a history of terminal illness in your family it would be advisable to opt for terminal illness rider with your term insurance plan. Riders or add-ons help in customising the standard policy benefits for the requirement of different families. The iSelect term insurance plan comes with a built-in cover for terminal illness, and option for protection against accidental death or disability. You can also opt to cover your spouse's life under the same policy by paying an additional premium.

Life insurance companies calculate the premiums based on several factors such as age, gender and occupation.

Age: It is one of the biggest factors that influence life insurance premiums. Premiums tend to be low when the life insured is younger as the chance of contracting diseases is low. Young people also opt for the best life insurance policies with longer tenures and pay premiums for a longer duration, which makes the policy cheaper for young people.

Gender: The insurance premium for women is generally lower when it comes to life insurance plans. Women live longer and pose a lesser risk of a claim leading to lower premiums for them.

Lifestyle habits: The premiums for people who smoke or drink is always higher due to higher health risks.

Policy term: Policy terms are also taken into consideration by insurers while deciding the premium amount. Life insurance policies with longer tenure are cheaper as compared to short-duration policies.

Mode of purchase: The platform that you use to buy the best life insurance policy also determines how much you will have to pay for the plan. People who buy life insurance policies online have to pay lower premiums as compared to offline policies.

Occupation: The nature of your work is an important factor that influences the premium amount. Certain occupations like shipping and mining are considered more dangerous as compared to jobs in services industries. The insurance premium rises with the risk profile.

Processing life insurance claim is a transparent and smooth process with Canara HSBC Oriental Bank of Commerce Life Insurance.

In case of the death of the life insured, the nominee will have to intimate the company by filling a Death Claim Form and sending it to the nearest branch office.

Once the form is received, the claim is registered by the insurer.

After the registration of the claim, the company will send the claims pack along with the related forms such as physician’s statement form and employer certificate that need to be filled.

Along with the duly filled forms a few documents such as original [policy document, death certificate, copy of bank passbook, hospital or treatment records, photo identification and address proof have to be provided.

The claim is processed on the submission of relevant documents. Once the documents are verified, the claim amount is released post all due diligence.

Household expenses rise with age. The cost of children's education increases along with other lifestyle expenses. The iSelect term plan offers an option to increase the cover according to the life stage. If opted, the insurance cover increases by 25% at every 5-year terminal till the 20th policy year.

Even though a life insurance policy is bought to protect your family in your absence, there are chances of the claim being rejected due to several factors.

False information: If the policyholder provides false information or conceals important information while buying the life insurance policy, the insurer has the right to reject the claim after his/her death.

Type of death: Deaths due to suicide in first policy year, intoxication or pre-existing disease is not covered under life insurance plan.

Premium payment: The payment of premiums on time is of utmost important to avail the benefits of life insurance. Life insurance policy may lapse on the failure to pay the premiums

Nominee details: A life insurance company can put the claim on hold if the nominee details have not been filled or not been updated by the policyholder.

Suicide: If the life insured commits suicide within 12 months of buying the life insurance policy, the insurance companies generally pay 80% of the total premiums paid.

Buying the best life insurance plan online is not only safe but a better option. Online life insurance policies have lower premiums and the individual is not required to visit the insurer's branch or a bank. The best life insurance policies online insurance offer higher benefits. Customers should, however, buy online life insurance policies only from credible insurers and should check for SSL certificate on the website to ensure that the website is legitimate.

The cost of life insurance policies varies depending on factors like age, gender and occupation. The average cost of life insurance plans, especially term plans, is very low compared to the amount of coverage offered.

An individual is allowed to have multiple life insurance policies. People opt for more than one life insurance policy to increase the cover or avoid claim rejection. In case of multiple life insurance policies, even if the claim is rejected by one insurer, the beneficiaries may receive the benefit from a different insurer.

Life insurance policies are of different types. In case of unit-linked or endowment policies the policyholder receives the maturity benefit at the end of the policy term. However, in the case of term insurance plans, there are no maturity benefits. The death benefit is only paid out after the death of the life insured.

When you buy a life insurance policy, the insurance company asks for the nominee details. Only the person named as the nominee in the life insurance plan can cash out in case of death of life insured.

A life insurance policy is generally taken for a specified period. After the policy duration of a term plan gets over, the policy simply terminates and ceases to exist. However, in case of unit-linked plans or endowment, you can use the policy as a tool for retirement planning and the accumulated corpus is used by the insurer to pay you monthly amounts for your entire life.

If a policyholder purchases a term plan for 25 years and dies during the policy term, the beneficiary receives the death benefit. In case of iSelect term plan, the policy provides four payment options to the beneficiaries. If the regular payment option is chosen, the policy works as a source of regular income.

It is a popular misconception that life insurance plans are only for accidental deaths. A term life insurance plan like iSelect Star Term Plan also covers terminal disease along with death. A terminal illness cover is important as health insurance pays only for the cost of treatment and hospitalization, but a terminal illness cover pays you a lump-sum amount which takes care of other expenses. On the other hand, unit-linked policies such as Invest 4G cover death and also provide decent returns for other financial goals such as buying a house of child's education.

It is ideal to buy a life insurance plan in your early 20s because it is the time when people have just started with their professional life and so there are lesser responsibilities and financial liabilities to take care of. Also, if you buy the best life insurance plan at this age, you will be paying relatively lower insurance premiums since it’s a due fact that mortality rate in case of young people is low. And that is why life insurance companies offer lesser premium rates to younger people as they think that they are most likely to be fit and healthier with less chances of filing a claim in future.

Once you have cancelled your life insurance policy, you will instantly lose your life insurance cover. Afterwards, your insurance company will get in touch with you and ask for valid reasons regarding the cancellation of your policy. In case you cancel your life insurance policy within the grace period, i.e. 15 to 30 days, depending on your insurer, then insurance company will reimburse the premium amount paid by you. But, no refunds will be paid to you if the policy is cancelled after the grace period.

Yes, you can take life insurance under Married Women’s Property (MWP) Act, 1984 only if you are a married man and a resident of India. Buying a life insurance plan under MWP Act would be helpful in saving your family’s financial well-being when you are not around. As per this policy, only wife and children would be eligible to receive the death benefits. You can also buy a policy if you are a widower or a divorcee. However, in that case, you can give your child’s name as your beneficiary. It is very simple to buy a life plan under MWP Act. All you need to do is to fill up an MWP addendum while purchasing an insurance policy.

Yes, there are different payment options for you to pay premiums. Here’re some of them

    1. Regular premium payment option – This premium payment option allows you to pay premiums equal to your policy term either monthly, quarterly, half yearly or annually.

    2. Single payment option – Through this premium payment option, you can pay the lump-sum amount in one single payment.

    3. Limited payment option -In this premium payment option, you can pay premiums for a specific period of time less than policy term either monthly, quarterly, half yearly or annually, but benefits of insurance can be enjoyed for a longer period of time.

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