Ensuring adequate financial security to one's immediate family members - a top priority for every working individual, given the uncertainties of modern life. There may be many means to protect your family against life's uncertainties, but none has the charm of insurance products - the most common means to mitigate risks. The market is now brimming with countless insurance products, all of which claim to provide financial cover to the direct dependents in the unfortunate demise of the earning (insured) member. Insurance products are sold like hot cakes in this country.

However, statistics reveal that the life insurance penetration in India has still a long way to go. Figures from the Reserve Bank of India show that the share of life insurance products in the total financial savings of the households has gone up from about 17% in 2006-07 to 19.5 % in 2008-09. In absolute terms, this means Indians have invested over Rs 1.45 lakh crore of their total savings in life insurance products, second only to bank deposits. And in terms of number of policies, the insurance industry had a total of about 26 crore policies until 2007-08. Roughly, life insurance today provide cover to nearly 26 crore households, though the actual number is bound to be much less due to a single individual buying more than one policy.

Take off the sheen, and we realise that the market is highly under-penetrated, given India's population of nearly 115 crore. The larger issue is that of under-insurance. As per the IRDA statistics, the total amount of life cover or sum assured on the 26 crore policies in 2007-08 were merely Rs 23.96 lakh crore. This translates into average life cover per policy to just about Rs 93,000. Given India's current per capita income of around Rs 39,000 and average family size of 5.1, the amount covers only the six-month income of a typical family in India. This is a meager amount and cannot termed as financial security by any stretch of imagination.

The distinguished panel at the Accenture-Economic Times High Performance Insurance Series had a serious discussion on the topic, considering this as an opportunity in disguise.

TR Ramachandran, CEO & managing director of Aviva Life Insurance, rightly pointed out that the market for insurance products in India is based on the 'push' rather than the 'pull' model and that insurance is typically sold as a tax-saving instrument here. This artificially caps the amount of premium paid to the maximum permissible tax exemptions.

Moreover, the success for the high premium unit linked insurance plans (ULIPs) is in fact the outcome of a common perception shared by many Indians that a traditional insurance plan will not result in any return if the policy holder survives the entire term. This perception of a term plan as a wasteful expenditure has boosted the growth of ULIPs.

Source: Economictimes.indiatimes.com, March 31, 2010.