Insurance and its pain

I have lots of confusion about life insurance products in India especially the underwriting of a policy. In any brochure or any form there is not stated about the calculating formula of determining the premium value for a prospect insured. Total episode is a hidden one.

Second thing about Surrender Value – There is two type Surrender Value. One is Guaranteed Surrender Value and another is Special Surrender Value. Three years premium paying is a must in any Endowment policy in India, enforcing act determined by Insurance Regulatory Development Authority of India.

I have principally strong objection in this particular point. Why three years will be enforced as paying premium as compulsion, otherwise if the insured stop paying further premiums and stop to continue the specific Life Insurance Policy?

IRDAI and all (24) life insurance companies have strong argument that first three year’s premiums is used to balance the expenses of risk financing and other administrative costs. 

Some days ago I was reading an essay about life insurance market size in India and its present and future prospective penetration comparing with international figures. The penetration rate in India is 3.9% and fix the target to 5% by 2020. The population size in India is 1.3 billion and 3.9% peoples are insured. Does it a good figure? Simple answer – No! Almost 96.1% peoples are uninsured in India. Is it lack of awareness? I think not fully. Because main difficulty is lack of income and daily struggle in life to meet up daily expenses which is hiking every day. So end of the month 25 million families and 80% out of this figure, do not have a single money for savings either in any bank or in any insurance.

Liquidity in insurance industry is a big barrier of spreading their business and covering all people under life insurance. Another way of draining money is agent commission. In selling of endowment policy agent’s maximum commission comes 35% on the annual premium. So after three years when one wish to surrender own policy due to unable of continuing the policy that point he/she get only 30% of second and third year’s summation of premium, first year’s premium is excluded.

Example : if one pay annual premium 10,000 buck for three years, that come total 30,000 bucks. But when the question will arise about surrender value, he or she will get 20,000 x 30% = 6,000 bucks. Whether if the same person deposit the same amount in savings bank he or she will get 4% yearly interest and after three years his/her money will appreciate to 30,000 plus.

The morale of the story is insurance is not good for those people whose income level is low and have to have struggle daily life with compulsory expenses for living. In India there is no financial and social security to poor common people.

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