HDFC Standard Life Insurance Q4 FY18 review: Premium valuations to sustain

It has been estimated that India has nearly 17 percent of the world’s population but when it comes to protection gap, it is huge. As it is India accounts for less than 1.5 percent of the world’s total insurance premium and inspite of the growing insurance market in the country, India is still both under-penetrated and inadequately insured. A transformation is needed and the government need to play the role of a catalyst in this direction.

In the upcoming Budget 2018, we expect the government to announce certain measures that would not only create awareness about life insurance but will also incentivise people to get them adequately insured for the sake of the surviving family members.

The life insurance penetration has always been denoted in terms of premium-to-GDP of a country. This has possibly led to the current insurance penetration rate in India but is still extremely low as compared to the rest of the world. It is only 3.42 percent in India, while the global average is 6.2 percent.

However, the true measure of life insurance coverage is derived from the sum assured (the amount that insurer is legally bound to pay on the occurrence of an event like maturity or death) of an insurance contract. Traditional endowment plans are the mainstay of the industry where the premium to sum assured ratio is low. On the other hand, term insurance plans are still not the first choice for many buyers. By shunning the latter, they heavily fall short of the actual requirement as most financial planners suggest life insurance cover of at least ten times of one’s annual income with a review every five years.

Less than 10 percent of protection need is met by savings and insurance. Under-insurance and the means to meet an unexpected financial event is therefore at a high in India.

Term insurance plans are low-cost, high-premium plans. Individuals lack awareness and clarity on term plans and view them as something where its ‘premium lost’, on surviving the term of the plan. Most insurers have therefore been using the online channel and promoting the purchase of term plans from their websites. Interestingly, persistence on such policies is high compared to non-term policies.

Premium paid towards life insurance including term insurance plans qualifies for tax benefit under section 80C of the Income Tax Act, 1961. However, this section which has a cap of Rs 1.5 lakh a year, is already overcrowded and comprise of even certain expenses such as tuition fees and home loan principal repayments in case of a self-occupied house.

Recognising the need for term insurance plan will not only create awareness for it and make people realise its importance but also make them buy adequate protection amount.

Budget 2018 need to recognise the importance and need for term insurance plans and we expect the Finance Minister to announce a separate limit for the term insurance plans. The move could benefit in increasing awareness of these plans and also help the surviving members of the families to maintain their standard of living after the death of household earner. A separate limit of Rs 50,000 per annum for life insurance within the section 80C or as a separate section under the IT Act, will give an impetus to the industry that already serves over 35 crore consumers, perhaps the largest retail financial industry, apart from banks.

Be it the term plan, health insurance, critical illness plans or riders like term rider and critical illness rider, the Government of India should fully exempt these from GST. A significant reduction in premium will go a long way in creating a secure nation where every household will have the ability to overcome financial stress caused by unforeseen events of life.