In recent years the India has emerged as one of the fastest growing financial services market in the world. This has been largely due to rising incomes driven by economic growth and increasingly informed customers with differing needs for financial services.

The Life Insurance market in India has also grown very impressively over the past six years, with new business premiums growing at over 30-35%. Today, the $ 41-billion Indian life insurance industry is considered the fifth largest life insurance market. The total number of life insurers registered with the IRDA has gone up to 23 and since the opening up of the insurance sector in India, the industry has received FDI to the tune of $ 525.6 million.

The impressive run has been powered by the liberalisation of the industry that enabled new players in the industry with greater enthusiasm and aspirations backed by capital commitments. The new players have also helped the industry develop by significantly contributing to increased insurance awareness & information flow, promoting consumer education, new product innovations & by creating organized marketing & distribution channels.

The Indian Life Insurance industry though is still at a very nascent stage and there is a very long way to go. Currently, the ratio of life insurance premium to the GDP is around 4%. This is much lower than the market levels of 6% to 10% generally observed in developed markets. With only 30% of the Indian population exposed to some form of life insurance, there is also large disparity in the exposure of urban and rural markets. In urban markets, the life insurance penetration is about 65% and in rural markets, this is significantly lower.

There are a host of reasons why life insurance exposure is low in India. The primary reason being ignorance about life insurance and the lack of information and awareness about life insurance facility & options available. There is still lack of easy access to insurance products in India especially in un-banked, rural markets. Often, even if life insurance is taken, the same is largely inadequate to the required amount. This is something common across urban & rural markets, even educated & uneducated masses.

Life Insurance Need:
Life insurance' is a contract between the policy holder and the insurer, where the insurer agrees to pay a designated beneficiary a sum of money upon the occurrence of the insured individual's or individuals' death or other event, such as terminal illness or critical illness. In return, the policy holder agrees to pay a premium - stipulated amounts at regular intervals or in lump sum.

There are only two serious uncertainties of our lives.

• Dieing early without adequate wealth for others
• Living too long without adequate wealth for self

With many types of life insurance products available, one can easily cover both these risks comprehensively. Products can be chosen that would provide the necessary amount to your family in case of your uncertain death and also provide a secured source of income during the golden years of your life.

Advantages of Life Insurance:
The following benefits explain why life insurance should be an integral part of your overall financial plan.

• Risk Cover and financial security in your absence – This is the most important advantage as one can ensure financial well-being for near & dear ones in your absence.
• Protection plus savings over a long term – Since traditional policies are viewed both by the distributors as well as the customers as a long term commitment; these policies help the policyholders meet the dual need of protection and long term wealth creation efficiently.
• Planning for life stage needs – Life Insurance policies can also help build long term investment and help you meet your life goals, like child education, their marriage or retirement.
• Protection against rising health expenses – Life Insurers through riders or stand alone health insurance plans offer the benefits of protection against critical diseases and hospitalization expenses
• Tax Benefits – Insurance plans provide attractive tax-benefits for both at the time of entry and exit under most of the plans
• Inculcate savings habit – Being a long-term contract, regular savings is promoted by way of premium payments
• Safe and regulated – Insurance is a highly regulated sector and IRDA, the regulatory body, through various rules and regulations ensures that the safety of the policyholder's money is the primary responsibility of all stakeholders

Who needs life insurance?

1. Children: Children do not need life insurance. This is because, in majority of the cases, no one is dependent on their income. In most insurance policies too, the entry age is restricted to adults.
2. Single Adults: Single adults with dependents may need insurance policy to care for the financial needs of the parents / dependent persons they support in their absence. However, for single adults with no family / dependents, life insurance coverage is not a necessity.
3. Beginning Family: Life insurance becomes a necessity if you are considering or have started a family. The need is high as one needs to secure the financial well-being of the family that one is supporting, which often would include spouse and parents. The amount of coverage needs to be sufficient to support their needs for adequate number of years in future. Getting life insurance early at this stage would also be cheaper for you. For well-earning, working couples with no children, they can decide upon their life insurance needs which would be largely to insure better financial well-being of the other person.
4. Established Families: If you have a family that depends on you, then adequate life insurance coverage is a high priority necessity for you. Even for non-working spouse, life insurance coverage needs to be considered since in her absence can cause significant financial problems for the surviving family. For earning family members, needless to say, adequate life insurance coverage that would cover financial needs for a significant number of years is a must. The cover should be adequate to meet the financial goals of the family life child education, marriage, spouse retirement, etc. in additional to the regular household expenses. Any delay in taking policy would rise the insurance costs or lower the insurance coverage. Hence it is advisable to get life insurance coverage as early as possible.
5. Elderly: For the elderly who do not have people depending on their income, life insurance is not a necessity. Purchasing a life insurance policy at this stage would also be very expensive. In case, the elderly are looking for investment options, they can do well to search for other low risk financial products with guaranteed income.

How much is needed?
The most important question that comes to mind while planning for insurance is 'How much of insurance is adequate?' Factors such as the family size, dependents, outstanding liabilities, disposable assets, mortgages/loans, lifestyle, income sources, investment needs and many other factors impact your insurance requirement. The idea is that the insurance cover should be to such an extent that in case of one's demise, his / her dependents are able to maintain the same lifestyle as they used to have before the unfortunate event occurred while meeting all financial goals. One may use the following simplistic formula for deciding the life insurance need:

• Disposable Assets
• Total Liabilities
• Present value / cost of all future goals
• Present value of the Monthly required cash flow for future period which you wish to support

The insurance need would be (a) – (b) + (c) + (d)

Other than this, one may also decided upon the thumb rule for life insurance coverage depending upon the annual income one is earning. The rule can be to have between 5-15 times of annual income as the insurance coverage amount. The multiple would be on the higher side for persons with established families and would be on the lower side for elderly persons / single adults, as the dependency on income reduces.

Types of Life Insurance Policies available in the market

• Pure Protection Policies : Pure protection policies are like pure life insurance policies. They provide you with life insurance coverage for a specified term of years in exchange for a premium whereby the policy does not accumulate any cash value. In other words, such plans are pure risk cover plans without (or with limited) maturity benefits. The purpose is to provide a high level of coverage at reasonable cost to the person. Hence the term 'pure' where the premium buys protection in the event of death and nothing else. Another popular term used for pure protection policies is "Term Insurance"
• Endowment Policies : Endowment life insurance plans cover risk for a specified period, at the end of which certain defined and/or accumulated benefits are paid back to the policyholder. Such plans are popular and are in nature of long-term savings plans with build-in life cover. Generally at the end of the term, the policyholder receives sum assured plus the accrued / guaranteed bonuses declared during the term, as a lump sum, provided all the premiums are paid. Further, in case of the unfortunate death during the term of the plan, the sum assured is paid out along with the accumulated benefits that the policy offers.
• Whole Life Policies : Whole life insurance plans, as name suggests, offer life protection during your entire life. Such plans generally offer the option to pay the insurance premium either during the whole life or for a limited period. Such plans generally do not carry any maturity benefits and pay the sum assured to the family in case of an unfortunate death of the policyholder. The primary purpose is to offer financial protection to family.
• Investment oriented Policies / ULIPs Investment oriented plans or ULIPs (Unit Linked Insurance Plans) : provide you with life coverage and also invest a part of your premium into assets like equity, debt or cash market instruments for creating wealth. Thus, a par of the premium goes towards life coverage and a part in investments whereby units are allocated to the policyholder which have a NAV, similar to mutual funds. The primary purpose of such policies is long-term wealth creation with benefit of life coverage during the term. The policyholder has the generally choice of choosing the preferred asset class for investments.
• Pension Policies : Pension plans have the purpose of providing for a pre-specified amount at regular intervals of time, starting at a defined time. Thus, such products are more suitable for your post retirement planning. Generally the pension plans have two options - (a) Immediate Annuity Plans and (b) Deferred Annuity Plans.
• Child Care Policies : Child care plans have the purpose of providing for monetary support to your child and family in case of any unfortunate death or disability of the parent. Such plans help ensure that your child's financial future and that their goals and dreams are met. Such plans usually offer defined corpus to the child at a certain age in future with premium waiver facility in case of any unfortunate event happening with the parent.

Summary:
Life insurance coverage has typically been low in India. As educated and informed citizens, it is very critical on our part to ensure that we are adequately insured such that we can guarantee a secured financial future for our dependents. There are a number of policies available in the market. However, one needs to carefully consider and understand all the options available and one's own need before committing to any product. Taking life insurance is an important decision in your life and one that would be taken very often. Investors need to ensure that they get it right the first time.

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Mr. and Mrs. Arora recently moved to their 3 BHK luxurious apartment in greater Noida. Although it is a premium property spread across 100 acre township (like a small city within a city, with school, hospital, super markets along with other amenities within the gated township property) but distance to office for Mr. Arora increased manifold as now he has to travel every day from Greater Noida to Noida through express highway.

With property prices going through the roof within the prime city areas, many new townships are coming up in peripheral areas, giving birth to new satellite towns, or corporates are shifting their offices to new suburbs due to modern facilities and lower rental. This is the story in almost every city, be it Delhi/NCR, Mumbai, Ahmedabad, Bangalore, Chennai or Pune. Although these new property developments give all the luxuries, commuting becomes a headache and increases the risk. Below are key findings about accidental deaths and injuries:

• 4,00,517 people died of accidental deaths in 2013, an increase of 1.4% over the year 2014
• About 1.2 million Indians were killed in car accidents over the past decade
• On average one every four minutes, while 5.5 million were seriously injured
  (Source: National Crime Records Bureau (NCRB) for 2013, Media reports published in the year 2014.)

Above statistics says all about accidental risks. Now the Life insurance gives protection against death, both natural or accidental, but does not provide cover for accidental injuries & medical bills as well as any kind of financial loss suffered due to permanent or partial disability.

What is personal accident policy and what does it cover? As the name suggests, it covers accidental

As the name suggests, it covers accidental death and also provides for financial loss due to disability. It may so happen that even after hospitalization, an individual has to go through medical treatment and rest at home, losing on regular monthly income. Personal accident policy comes in handy in such cases, where policy holder gets reimbursed for the loss of income due to permanent or partial disability.

Lets say a person fractures his leg in an accident. A PA policy cannot get your leg back in the same healthy state, but it can cover your financial losses that you might suffer as a result of losing your mobility, suffering a disability that affects your earning capacity or even loss of work arising from your accident.

So the basic objective of personal accident policy is to support policyholder in case of financial loss due to permanent or partial disability apart from death. It's important to understand the terms and conditions clearly before you buy a policy. For example, hospitalization benefit can be availed of only if the policyholder is admitted within seven days of the accident, and is hospitalized for at least 24 hours. A fractured leg is a temporary disability, and if you have taken a cover against it, your policy will pay a weekly sum of 5,000 for up to two years. However, this weekly cash benefit is paid only if you are unable to go to work and the payment starts only 60 days after the accident. One also has to submit proof, including a doctor's certificate for the disability that prevents one from attending work.

Personal accident cover can be bought either as a rider to your life cover or as a standalone policy. it is always sensible to buy a separate personal accident policy rather than taking accident rider. It is beneficial on the aspect of more features at may be lesser cost. With annual premium of around Rs. 1500 one can buy basic PA cover of around Rs. 10 lakhs. For any PA policy it is imperative that it covers basic eventualities like death, permanent total disability, permanent partial disability.

Critical Illness Cover:

Medical bills are rising. Medical inflation in India is as high as 15-17%. Even a single day hospitalization can be a burden on your wallet. Imagine the cost of medical treatment for any critical illness like cancer, stroke or bypass surgery.

Critical illness cover provides you shield against any such eventualities. Basic difference between a health plan and critical illness cover is that normal medical insurance is an indemnity plan, whereas critical illness is a benefit plan. In a sense, medical insurance cover reimburses actual expenses incurred on medical treatment, while critical illness gives entire amount of cover on diagnosis of a particular critical illness.

There is a standard list of critical illnesses, which are covered under each policy. So it is advisable to check the list of critical illnesses covered, & other terms and conditions. Amount of insurance to be taken depends on individual's age, profession and family history among other things, but coverage of at least Rs. 5 lakh is recommended.

The above graph shows the ladder approach to your insurance portfolio, where basic term plan and health insurance become pillar of any insurance planning. One should think about adding personal accident cover and critical illness only after these two types of insurance needs have been fulfilled.

Always remember that these products are for specific purpose and can not substitute basic health insurance. An individual can look at these plans once basic health cover is in place, just as one uses toppings on a pizza to make it fulfilling.

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