Investment, not protection motive behind life insurance

Life insurance has a sole motive of securing the financial goals of a family in case the bread earner fails to do so due to some unfortunate event. The life cover provided by a life insurance policy comes in handy when the policyholder is not around and the family needs to continue their lives.

However, it is striking to notice the amount of average sum insured per policy that policyholders hold. As per financial year 2011-12 (FY12) data announced by the Insurance Regulatory and Development Authority (IRDA), the average sum insured per policy of the entire life insurance industry was just Rs 1.29 lakh.

This essentially means if some unforeseen events happens then a policyholder’s family would get only this much to maintain their lifestyle in their absence.

The average sum assured per policy was Rs 1.17 lakh in FY11.

This clearly indicates that people still buy insurance for investment and tax-saving purposes rather than to protect their loved ones. In FY12, the number of policy in force in the life insurance sector rose by 1.85 per cent to 335,284,030, compared with 329,186,830 policies a year ago.

As per the data, largest life insurer of the country Life Insurance Corporation of India (LIC) had 291,591,320 policies in force till FY12, against 285,936,210 policies till FY11, growth of 1.98 per cent.

The average sum assured per policy stood at Rs 1.02 lakh in FY12, against 94,000 in FY11, growth of 9.24 per cent. Total sum insured provided by LIC stood at Rs 29,83,246 crore in FY12, against Rs 26,77,969 crore in FY11, a rise of 11.4 per cent.

Among the 10 largest life insurance companies including LIC, in terms of their number of policies in force, Birla Sun Life Insurance had the highest average sum insured per policy, which stood at Rs 4.89 lakh in FY12. This was 12.5 per cent more than its average sum insured per policy of Rs 4.34 lakh in FY11.

HDFC Standard Life Insurance had the second highest average sum insured per policy of Rs 3.53 lakh in FY12, compared with Rs 3.09 lakh in FY11, rise of 14.2 per cent. Among these 10 insurers, Tata AIA Life had the third highest average sum insured per policy of Rs 3.19 lakh in FY12 over Rs 3.15 lakh in FY11, rise of 1.3 per cent.

Over the past few years, we have seen a shift towards traditional policies, which is increasing the average sum insured. Traditional policies generally have higher sum insured against unit-linked insurance policies (Ulips).

We expect this to go even higher at a rapid pace over the next few years as insurers promote their term plans more aggressively,  said Sanjay Tiwari, vice-president of product at HDFC Standard Life Insurance.

Bajaj Allianz Life has the highest number of policies in force in the life insurance sector after LIC, which stood at 8,307,030 policies in FY12, compared with 8,586,820 policies in FY11, a drop of 3.2 per cent. ICICI Prudential Life has the second highest number of policies in force, which stood at 6,068,440 policies in FY12, against 6,251,470 policies in FY11, drop of 2.9 per cent. Third position was held by Reliance Life, which had 5,158,130 policies in force till FY12, against 5,279,220 policies in FY11, drop of 2.3 per cent.

Among the nine private insurers that were analysed, HDFC Standard Life witnessed highest growth in number of policies in force. A total of 3,833,220 policies are in force till FY12, compared with 3,587,760 policies in FY11, growth of 6.8 per cent. Similarly, SBI Life saw a rise of 6.2 per cent in the number of policies in force. Till FY12, 4,758,320 policies are in force, against 4,477,350 policies in FY11.

As the life insurance sector matures further, we would see more of term plans being sold. While policyholders should always go for protection oriented products first and then towards saving related product, usually opposite happens, said G V Nageswara Rao, managing director and chief executive officer at IDBI Federal Life Insurance.

Bajaj Allianz Life had provided highest total sum insured among the nine private insurers, which stood at Rs 1,95,687 crore in FY12, compared with Rs 2,05,253 crore in FY11, drop of 4.6 per cent.

ICICI Prudential Life saw a rise of 8 per cent in the sum insured provided to their policyholder, which stood at Rs 1,91,389 crore in FY12, second highest among the nine insurers that were analysed, against Rs 1,77,188 crore in FY11. Birla Sun Life saw a rise of 10.5 per cent in the sum insured that they provided to their policyholder, which stood at Rs 1,43,814 crore in FY12, against Rs 1,30,095 crore in FY11.

Among the nine private insurers analysed, SBI Life had witnessed highest growth of 32 per cent in total sum insured provided, which stood at Rs 1,15,254 crore in FY12, against Rs 87,348 crore in FY11.

HDFC Standard saw a growth of 22 per cent and total sum insured provided stood at Rs 1,35,241 crore in FY12, compared with Rs 1,10,821 crore in FY11. ING Vysya Life Insurance witnessed a rise of 8.7 per cent with total sum insured provided to their policyholders of Rs 25,001 crore in FY12, compared with Rs 22,99,091 lakh in FY11.

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