Comparing Traditional Life Insurance Products in the Indian Market: A Consumer Perspective

Life insurance policies are valuable assets to mitigate the financial risk of untimely death. As such, every individual facing such a financial risk who can afford to pay for such a protection must seriously consider purchasing some life insurance. In the current Indian market, this choice is difficult on three counts: ? Inherent complexity due to uncertainty and long time horizons. ? The need to compare a plethora of different types of products from competing insurance companies. ? Most insurance policies bundle pure insurance with savings to offer composite products. ? There are two broad types of life insurance policies available in the Indian market: i. Traditional? products consisting of Term Insurance, Endowment and Whole Life Policies ii. ?Modern? products, which are unit-linked life insurance policies where the investment risks is borne by the policyholder. ? This paper is an attempt at a comparative evaluation of the Traditional Insurance Policies available in the Indian Market from a consumers? perspective: i. Which type of traditional insurance product should I buy? ii. Which insurance company?s product should I buy? iii. Is it better to save through insurance policies or through the widely available tax-advantaged Public Provident Fund (PPF)? ? We use an expected present value approach, data on mortality rates, currently prevailing premiums on insurance policies and interest rates- for the comparison within and across policy types. ? We conclude as follows: i. Shopping around will save a lot of money for an insurance buyer ii. Term insurance should be the primary choice for insurance protection iii. PPF is likely to be a better savings option than buying endowment or whole life policies.