Valuing the Term Insurance Products in the Indian Market

Rajagopalan, R (2003) Valuing the Term Insurance Products in the Indian Market. TAPMI, Manipal.


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Pure level tenn insurance is the simplest life insurance product. A policyholder pays a series of equal periodic premiums. If he dies during the tenn of the policy, his nominee gets the sum assured from the insurer. Instead, if he survives the tenn of the policy, the insurance company does not pay anything to him. Still, this simple product was not offered in the Indian market till recently. Life Insurance Corporation (LIC) of India was a government monopoly. LIC offered only the so-called 'bundled products', namely, Whole Life, Endowment, Money-Back etc. Such bundled products combine the insurance and savings products into one. A consumer thus could choose only one of the available benefit bundles: some life insurance, some tax benefits and some (uncertain) investment returns. Fortunately, things are changing. Since the liberalization of the insurance industry, several private insurers have entered the market with pure tenn insurance products. This has forced LIC also to offer its own tenn insurance product. Aggressive pricing by competing insurers has led to a dramatic reduction in premiums. Insurers are also targeting specific buyer segments like high net-worth individuals, younger salary earners, workingwomen etc. New distribution channels like corporate agencies, including banks, have been permitted. Given their simplicity, tenn products may be the first to be pushed through such new channels, at significantly lower distribution costs than the traditional agency channel. This paper uses available data on mortality rates and tenn structure of interest rates in India, to address the following: 1. Are the pure level tenn policies on offer in the Indian market worth it? 2. Specific implications for insurance buyers, insurance companies, the Insurance Regulatory and Development Authority (IRDA) and for further research.

Item Type: TAPMI Working Papers
Subjects: Finance
Divisions: Finance and Strategy
Depositing User: Ms. Vanitha K
Date Deposited: 17 Nov 2018 05:40
Last Modified: 17 Nov 2018 05:40

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