Life insurance penetration is still dismally low in India. Why? Do you believe that "Keyman Insurance" can help in improving the situation? If yes, then how ?

We agree with the statement that Key Insurance Penetration is still dismally low. Key Insurance penetration in India continues to be one of the lowest at 3.69%, according to the annual report by IRDAI. "Insurance penetration in India was at less than 1% when the industry opened up for private companies in FY 2000-01. The life insurance penetration was at 4.6% in 2009 but visibly showed a downward trend after that. Volatility in the stock market in 2008-2009 and regulatory changes in 2010 adversely impacted the sale of ULIP (unit-linked insurance plan) products and premiums. "Penetration in India reflected a flat trend of 2.7% from FY 2014-15 to 2016-17. Reasons for Low Insurance Penetration A Pre-launch Survey Report published by NCAER (National Council of Applied Economic Research) and IRDAI (Insurance Regulatory Authority of India), gave few insights into the reasons why insurance penetration is low in this country. Majority of insured households know that insurance is a better tool for emergency than any other savings instrument. About equal number of households whether insured or uninsured see life insurance as a long-term savings and risk coverage tool. About 50% of both rural and urban household have heard about health insurance policies. Majority of both insured and uninsured household felt that insurance is relevant for all classes. However, there are a few missing links and clues that point to the leakages: Agents are the primary source of information about insurance for all households. A whopping 75% households have bought insurance because of agents' advice. Majority of households in both segments perceive 'accidents' and 'untimely death' as the two events relevant to insurance. About 13% of uninsured population feels that insurance is only relevant for the rich while another 25% have no idea about it. About 50% of uninsured population feels that insurance is neither a savings tool nor a protection tool. This population also does not know about the kind of losses insurance can compensate for or to what extent. Key Person Insurance is also known as Keyman Insurance. This is an insurance taken by a company (or partnership firm) on the life of a Key Person who can an employee or a director of the company or partner of the firm. For example, let us assume that A is the founder and Promoter of ABC Limited and has invested in the equity shares of the company. He is also the Chairman of the Board of the Company. It is only because of him that the company has turned profitable and his presence adds significant value to the company. Under the above scenario, on death of A, the company ABC Limited could be impacted financially. His absence could result in loss of potential income as some clients who are with the company because of him could move to other companies or there could be a drop in morale of the management and this company's performance and therefore revenue and profitability. Thus the company ABC Limited has an insurable interest in the life of Mr. A so the company can purchase a Keyman Insurance Policy from a life insurance company, where the Policyholder will be ABC Limited and the life insured would be that of Keyman i.e. Mr. A in this case. The company has an insurable interest in the life of Mr. A as in case of his death the company is likely to suffer losses. Only term insurance policy (where sum assured is payable only on the death of the life assured. Sum assured in such cases is calculated based on the contribution of the Keyman to the Company and potential loss to the company in case of sudden death of the Keyman. From underwriting point of view it is important to establish the need for insurance of the Keyman i.e. whether the Life assured is indeed an indispensable person to the organization. This could be subjective based on certain statements made by the organizations but mostly it should translate into some visible benefit due to continuance. The following factors are considered while considering the need for Key Person insurance: Age - Generally the assured is not too young or not too old. If too young the person might not have contributed significantly to the company's success. If too old the person might not have enough residual service to justify a minimum term of the policy. Level of expertise - high level of technical expertise or management skills makes a person indispensable. Qualification and experience in different fields is of great significance importance. Earning of Profit making track record of the company - usually the key person's contribution translates into higher revenue or profitability over a period of time, especially when the person is in sales or marketing jobs or Managing Director or CEOs whose key performance indicator is driving profitability. However there could be other functional heads like Chief Human Resources Officer who may not contribute directly to Profitability but builds a good culture which motivates employees to stick on to the company and contribute to the success. However this needs to be demonstrated by the company taking the Key Person Policy. There is no limit to the number of Key Person(s) in a company. This depends on the needs of the company. Usually, the sum assured under a Key Person policy is linked to the profitability of the company and the amount of insurance cover granted could be, minimum of the following 3 parameters: 3 times the average gross profits of the Company for the last 3 years. 5 times the average net profit of the company for the last 3 years. 10 times the total annual compensation package for the key man which includes salary, bonus and all other perquisites. If there are more than 1 key person in the Company, the overall limit will be governed by the same principle and the sum assured granted to the various key persons will not exceed the overall limit arrived at by the above method. So we can say that Keyman Insurance helps in increasing the penetration level in Insurance as it is been done in bulk for the employees of an organization.