At 23, Rohit Kumar has everything going right for him. A techie with a takehome pay of Rs 25,000 a month, he zips through the city on a cool bike and owns the latest 3G phone.
But ask Kumar whether he has got a life cover, he draws a blank. Kumar is among the growing breed of younger generation who have a good job going for them, but do not have insurance in their scheme of things.
B Chakrabarthi, chairman and managing director, National Insurance Co, said insurers are yet to tap the youth for life covers. He points out that the average age of life insured is about 50 years in the country, highlighting the low penetration of insurers among the youth.
Nilesh Sathe, chief of pension and group insurance schemes, Life Insurance Corporation, says the young feel that they can postpone their insurance commitments on the grounds that they will require it only when they get into the family way.
Most of them, however, fail to realise that insurance should be taken when a person is healthy because in the unfortunate event of an illness or accident, the absence of an insurance cover will hurt the most.
So what's the right cover for the just initiated. "Young people who have just started earning for the first time or have been working for two or three years should ideally go for a pure term insurance," points out Gaurang Shah, managing director, Kotak Mahindra Old Mutual Life Insurance.
G N Agarwal, head of acturial, Life Insurance Corporation, says a young person should go for pure term assurance plan during his initial stages of his career mainly because his income is expected to be lower and this plan provides larger cover for lesser premium.
For a person of 25, under a pure term assurance, the annual premium would be less than Rs 2,000 for a sum assured of Rs 200,000 depending on the number of years insurance is taken say 10 years, 15 years or 20 years.
Shah says premiums on Kotak's pure term assurance are still lesser for non-smokers and women.
Agarwal says the reason for pure term assurance policies having a low penetration was that people want insurance along with investment. In case of pure term assurance products nothing is payable if the policyholder survives the term. People treat it as if they have lost money in paying premiums under a pure term policy, adds Agarwal.
LIC withdrew its Bima Kiran recently which was similar to a pure term assurance but had the unique advantage where the sum assured would be paid to the person on completion of a term period.
LIC has a pure term assurance policy, Anmol Jeevan. Under this policy only in the case of the policy holder's death would the sum assured be paid. However, in the event of an unfortunate accident resulting in disability partly or wholly, the sum assured would not be paid.
The whole life plan is similar to pure term assurance that sum assured is only paid on death of the insurance holder. If the policy holder, however, goes on to live beyond 85, the aggregate lump sum assured would be paid to the policy holder in the case of whole life plan.
In the case of private life insurers, the entire sum assured would be paid if the person goes on to live for 100 years.
The difference between a pure term assurance plan and a wholelife plan is that in term assurance, the coverage of risk is only for the term selected whereas in case of wholelife, it is for the entire life.
The other difference is that under a pure term assurance plan, the building of reserves is almost negligible whereas under a whole life plan there is a substantial reserve build-up.
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