An Investment alternative – Insurance


Pushpendra Khamparia
ICFAI National College
Dewas, MP

The world "Fear" has only four alphabets like love but both of them are having very different meaning. Whatever man (male or female) does for the love of their families always starts with the background of fear. Generally so many times we have been asking our selves that, what will happen if we were not there, but we keep on asking rather then doing something for it. Time is precious, it never stops for any one and we are living in the world of uncertainty; the uncertainty of job, the uncertainty of money, the uncertainty of property and like this the story continuous for the whole life of a man.

Should I say, our narrow vision restricts us to see only through a pipe, we can imagine how big the world might be if we see beyond a hollow pipe. As the competition is intensifying more the number of "Mr. Chintamanies" are roaming around the streets.

How you can save your had earned money? or shall I say, where you can invest? The answer to these questions is Banks, Equity, Mutual Funds, Capital Goods, and Insurance Oh… I have written insurance and I have a reason to that, don't be surprise.

Yes, except insurance all the investment alternatives involves risk and the only rule that prevails is high risk high profit, if the economic circumstance is not favoring our investment we will loose our hard earned money, further more all these investment plans are for the short period on the other hand Insurance has a long term perspective. As investment it not only covers the risk of your life rather then it also secure the future of your loved ones.

The idea is to derive two basic investments need from insurance; one is the investment that means the returns on his money. In the age of reforms we have witnessed the falling interest rates of banks, post offices and also the prices are climbing by the lift and moreover the state is economy can not be considered as a stable economy. Every economic event is eying on the returns that you would be getting on your investments and ready to take their share.

The other aspects of investment is assurance form the investment that this is the amount you will be getting, it is impossible to predict this uncertainty and expect Insurance no other mode promises you that after a certain period or maturity on long term basis.

In view of these insights insurance emerges as the combination of both Investment and assurance.

Insurance = Investment + Assurance

Insurance a phenomenon:

The story of insurance is as old as mankind, though the concept of insurance is largely a development of recent past, particularly after the Industrial ear – past few centuries, yet its beginning date almost 6000 years ago. Life insurance in its modern form came to Indian form England in the year 1818, when a company Oriental Insurance was started by European in Calcutta. At that time lives of Indians are not considered a valuable therefore Indians are not insured by this company but then eminent personalities like Babu Muttylal Seal started a foreign life insurance company and started insuring Indian on higher rates as they are considered a sub standard class. Then Bombay Mutual Life Assurance Society came in to being and hence laid the background for the birth of India's first life Insurance company In the year 1870. Bharat Insurance Company inspired by the swedeshi concept started its operation in 1896 it was only the beginning of a new and emerging sector of India.

Some of the milestones of Indian Insurance;

1818: Oriental Life Insurance Company, the first life insurance company on Indian soil started functioning.

1870: Bombay Mutual Life Assurance Society, the first Indian life insurance company started its business.

1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate the life insurance business.

1928: The Indian Insurance Companies Act enacted to enable the government to collect statistical information about both life and non-life insurance businesses.

1938: Earlier legislation consolidated and amended to by the Insurance Act with the objective of protecting the interests of the insuring public.

1956: 245 Indian and foreign insurers and provident societies are taken over by the central government and nationalized. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 crore from the Government of India.

The General insurance business in India, on the other hand, can trace its roots to the Triton Insurance Company Ltd., the first general insurance company established in the year 1850 in Calcutta by the British.

Some of the important milestones in the general insurance business in India are:

1907: The Indian Mercantile Insurance Ltd. set up, the first company to transact all classes of general insurance business.

1957: General Insurance Council, a wing of the Insurance Association of India, frames a code of conduct for ensuring fair conduct and sound business practices.

1968: The Insurance Act amended to regulate investments and set minimum solvency margins and the Tariff Advisory Committee set up.

1972: The General Insurance Business (Nationalisation) Act, 1972 nationalised the general insurance business in India with effect from 1st January 1973. 107 insurers amalgamated and grouped into four companies viz. the National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd. and the United India Insurance Company Ltd. GIC incorporated as a company. This is only a simple glimpse of the prestigious history of Insurance in India.

Insurance today

In 1993, Malhotra Committee, headed by former Finance Secretary and RBI Governor R. N. Malhotra, was formed to evaluate the Indian insurance industry and recommend its future direction. The Malhotra committee was set up with the objective of complementing the reforms initiated in the financial sector.

With the setup of Insurance Regulatory Development Authority (IRDA) the reforms started in the Insurance sector. It has became necessary as if we compare our Insurance penetration and per capita premium we are much behind then the rest of the world. The table above gives the statistics for the year 2000.

With the expected increase in per capita income to 6% for the next 10 year and with the improvement in the awareness levels the demand for insurance is expected to grow.

As per an independent consultancy company, Monitor Group has estimated a growth form Rs. 218 Billion to Rs. 1003 Billion by 2008. The estimations seems achievable as the performance of 13 life Insurance players in India for the year 2002-2003 (up to October, based on the first year premium) is Rs. 66.683 million being LIC the biggest contributor with Rs. 59,187 million. As of now LIC has 2050 branches in 7 zones with strong team of 5,60,000 agents.

Changing perception

Some time back we generally save ourselves form an encounter with a insurance agent. No on can be set responsible for the state of affairs as there were only two players on the field one was the insurer and the other was to be insured. As if every one is playing the game Tom and Jerry, some times Tom runs fast and some times jerry.

Insurance as Investment  

Many times it has become difficult to sale the product with a long term orientation, Insurances has been referred as a "Policy" in the past and both the parties consider it as a tax saving Instrument. With the change in the perception of customer and that of the insurance companies now the insurance is offered as an "Investment" in the market which not only covers the risk of life but also promises handsome return on the investment.

Currently the various alternatives available being offered by the companies to the customers comprises many augmented features or we can say that the repackaging of the insurance has been going on. There are a plethora of insurance policies to invest in, many private and government run. The one good thing that's come out of the presence of private insurance companies: innovation in insurance policies. For instance, unit linked plans were introduced by private companies. Compare them with the traditional endowment and money – back – plans that provide both risk cover and additionally a return in investment and it is clear just how far the insurance market has come.

Some of the offering in the market are:

1. Tata AIG's     Maha life.
2. ING Vysya     Fulfilling life
3. LIC's            Jeevan Anand is whole life – cum – endowment plan
4. Birla Sun Life's Flexi life line plan
5. Max New York's offers inbuilt terminal illness benefits.

And the list goes on and on, apart forms the investment perspective they also a good source of Tax benefits as deduction under section 80c is a deduction form gross total income. Amount deductible under section 80c is equal to 100 percent of the qualifying investment premium or Rs. 100,000 whichever more is.


As of now we understand the changing dimensions of insurance and how it is being value add in terms of investment alternative. And that the insurance policies are pegged high on the scale of an investment plan because they work as saving schemes give us guaranteed cash payments annually and also provide a risk cover to us and our family.


* Business Line, Internet edition, Saturday, Sep-21,2002
* Indian Management, A Journal of AIMA, March, 2006

Pushpendra Khamparia
ICFAI National College
Dewas, MP

Source: E-mail April 19, 2006


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