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Insurance firms have demanded the government make term insurance - the life insurance which provides coverage for a limited period of time - mandatory for all salaried employees in the country. According to industry sources, they asked the government to include the proposal in the Union Budget of 2014-15.
"Why is term insurance not mandatory when third-party automobile insurance is compulsory in India?" asked a senior executive of a private life insurance company.
The official said, "Making insurance mandatory would be beneficial not only from insurance perspective but from a customer perspective also."
According to insurance officials, term insurance is a policy where a policyholder or a relative pays premium for a particular tenure. "If the insured dies within the tenure, the entire sum assured is paid to the kin. If the policyholder survives beyond the tenure, no money is paid. While some term products do allow moneyback at end of tenure, others don't."
Unlike other countries, India does not have a social security scheme to deal with insurance needs of individuals. In such a context, mandatory term insurance could be advantageous for the policyholder, insurance officials argued. The existing options provided by companies look solely at wealth accumulation and savings and not on individual life risks. While the proposal may help improve insurance penetration in the country, experts said it was very difficult to implement. "Companies already have provident fund and gratuity for employees. They may not be open to having another mandatory scheme for employees, since it would require them to put aside some funds for this too," said the chief executive officer of a mid-sized life insurance company.
