Should term insurance be made mandatory?   Dec 18, 2013


Having an optimal insurance cover is an integral to one's financial planning, as life is surrounded by uncertainties and contingent events occur when we least expect them. While many buy a life insurance cover recognising its importance, the products which they opt for and / or the Sum Assured they are covered are at most times sub-optimal. Our experience reveals that most people hold insurance-cum-investment plans, in their endeavour of killing two birds in one shot; but what they fail to understand is that they are sub-optimally insuring themselves. And thus by doing so, they are risking their dependent family members (who are financial dependent) and even upsetting the financial goals (such as children's education, their marriage, amongst others) if at all they are planning for them. You see, none of us are immortal and thus in case of an untoward event such as death, our family needs to be well indemnified. Insurance by definition refers to indemnification against risk; but merely buying an insurance policy isn't enough. It is imperative to have the right one, which optimally covers you in accordance to your Human Life Value (HLV).

'Term insurance' is the purest form of insurance, as it only provides you an 'insurance cover' and carries no frills, as in case of insurance-cum-investment plans. It provides you a high amount of coverage for specified number of years (such as 10, 15, 20, 25 or 30 years) at a very low premium. This type of policy caters to the need for protection of your dependent family members. So, in case of your demise as the insured during the duration of the policy, the amount of coverage taken under the policy is payable to your nominee. And in case if you survive at the time of maturity nothing is payable; albeit now some insurers, even offer a return of premium (ROP) option for a relatively high premium, while you buy such a policy.

Recognising the traits of 'term insurance', of late life insurers in India are looking to have mandatory term insurance for all salaried employees in organisations in India. Life insurers are mooting for an inclusion in the budget 2014-15 provisions to do so.

PersonalFN is of the view that such a proposal if it goes through, would be in the interest of millions of salaried individuals. But what's imperative is to have optimal life insurance coverage as well, for effective indemnification of risk. In a country like ours which lacks social security vis-à-vis those in the developed countries, this would indeed be a welcome move and should be extended not only to salaried individuals but all citizens of the country. Such a move, if it goes through, would also increase insurance penetration in the country. But it remains to be seen whether organisations in India would eventually agree to mandatory term insurance cover for their employees, as it would amount to increase in cost for them.

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Apr 11, 2014

Good Article,
Surely term insurance should be made mandatory , as it will arise a sense of protection  to individual against all odds, but while making it mandatory the govt. should  regulate the premium charged from customers and also check for terms & condition to make it more transparent.