private life insurance vs govt. life insurance schemes

Private Life Insurance vs Govt. Life Insurance: Which is best & Why?

Insurance Life Insurance

Purchasing a life insurance policy is important since it intends to provide financial coverage to you and your family members in case of an emergency or any unexpected event. Now, comes the most important question- Should you opt for a private insurance provider or government insurance provider?

At present, there are a total of 24 life insurance companies in India. Among these, Life Insurance Corporation of India (LIC) is the only public sector insurance company while the others are private insurance companies. Many of these private insurance companies are joint undertakings between public/private sector banks and national/international insurance-financial companies.

Comparison of Public  & Private Insurance Provider

Let’s take a look at last year’s progress report of the lone public insurance provider LIC against the total strength of 23 private insurers:

Market Share

At present, Life Insurance Corporation of India (LIC) holds approximately 72% of the total life insurance market in India as against 28% (approx.) held by all the 23 private insurers.

Claim Settlement Ratio

The claim settlement ratio can be defined as the percentage of claim settled by the insurance company to the total number of claims received. With the help of this ratio, the consumers get an idea of the ratio of claim settled by the insurance company in a financial year. The claim settlement ratio of LIC for the year 2018-19 is 97.79% whereas, for the 23 private insurers, it ranges between 80 % and 99%.

The above two factors show that the private insurers are slowly expanding and people are starting to look forward to them to meet their insurance requirements.

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Life Insurance Companies in India

  1. Life Insurance Corporation of India
  2. Aditya Birla Sun Life Insurance
  3. HDFC Standard Life Insurance
  4. AEGON Life Insurance
  5. Future Generali India Life Insurance
  6. Aviva Life Insurance
  7. Exide Life Insurance
  8. ICICI Prudential Life Insurance
  9. Tata AIA Life Insurance
  10. Star Union Dai-ichi Life Insurance
  11. SBI Life Insurance
  12. Reliance Life Insurance
  13. PNB MetLife Insurance
  14. Max Life Insurance
  15. Kotak Life Insurance
  16. IndiaFirst Life Insurance Company Ltd
  17. IDBI Federal Life Insurance
  18. Edelweiss Tokio Life Insurance
  19. DHFL Pramerica Life Insurance
  20. Canara HSBC OBC Life Insurance
  21. Bharti AXA Life Insurance
  22. Shriram Life Insurance
  23. Sahara Life Insurance

Top 5 Life Insurance Companies in India 2020

1.      Life Insurance Corporation of India (LIC)

LIC is the only public sector life insurance company in India that offers various types of life insurance products like pension plans, saving plans, group schemes, etc. It has a claim settlement ratio of 97.79% in the fiscal year 2018-19.

2.      Tata AIA Life Insurance Company Limited

Tata AIA Life Insurance Company has a joint association with the Tata Group and AIA Group Ltd. It offers a wide range of products like protection plan, wealth plan, child plan, micro-insurance plan, etc. to individuals and corporate insurance buyers. It has a claim settlement ratio of 99.07% in the fiscal year 2018-19.

3.      ICICI Prudential Life Insurance Company

ICICI Prudential Life Insurance Company is a joint venture between ICICI Bank and Prudential Plus. It offers an array of insurance products such as term plan, health plan, ULIP plan, pension plan, etc. that can help the buyers to achieve long term goals. It has a claim settlement ratio of 98.58% in the fiscal year 2018-19.

4.      Max Life Insurance Company

Max Life Insurance Company is a joint association between Max Financial Service Ltd. and Mitsui Sumitomo Insurance Co. Ltd. Along with novel sales channels that includes bancassurance, advisors, and agents, the company offers long term protection, savings, and retirement plans to its customers. It has a claim settlement ratio of 98.74% in the fiscal year 2018-19.

5.      HDFC Life Insurance Company Limited

HDFC Life Insurance Company is in collaboration between Housing Development Financial Corporation Ltd. and Standard Life Plus. The company offers a wide range of individual and group insurance plans like pension plans, health plans, protection plans, tax saving plans, child and women plans. It has a claim settlement ratio of 99.04% in the fiscal year 2018-19.

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Are Private Insurance Companies Reliable?

Private insurance companies started their operations in 2000 when the Insurance Regulatory and Development Authority of India (IRDAI) granted them entry into the life insurance market. At present, they are doing well. Let’s understand how much reliable the private life insurance companies are:

  • All the private life insurance companies are under the control of IRDAI and have to follow strict guidelines. As IRDAI gives priority to the interests of the customers to that of the insurance companies, you can trust the private insurers and can fairly attempt to resolve any conflict arises.
  • IRDAI imposes strict rules on every insurance company who wants to set up their business in India. The companies are required to deposit Rs 100 crores with the regulatory body so that they can start their insurance business. However, at present, the insurance firm has to deposit twice this amount to commence its operations in the market. This ensures that the companies are financially capable enough to enter the insurance market.
  • All the public and private insurance companies in India, are required to maintain a 150% solvency margin. For example, if a company insures 200 rupees, it should have 300 rupees in reserve. The solvency margin assures that the insurance companies have enough assets pay to off all its liabilities. If the liabilities increase due to any reason, the solvency margin will enable the company to restraint it. Also, if the company gets bankrupt, the Reserve Bank of India will pay the insured their dues. Hence, do not worry about suffering any financial loss in the hands of private insurers.
  • All the insurance companies are set up with a merger clause. As per IRDAI guidelines, if an insurance company is unable to operate its business due to any reason, it has to merge with another company. Hence, do not worry that a private insurer will wrap up their business all of a sudden and walk away from the customers.

How to choose between Public and Private Life Insurers?

Comparison

Whether it is public or private, before buying an insurance policy check the company’s reputation, solvency ratio, past achievements, and price. Compare the policies and choose the product that suits your requirements

Innovating new products

Although government insurance companies have several advantages, it is not very familiar with innovative products. On the contrary, private insurers are always launching innovative insurance products like ULIPs, cancer, and other new plans.

Online Presence

Private insurers are more active on the digital platform. In today’s era where online sales are escalating, private insurance companies are launching more and more products on their online platform. Although government insurers have entered the online market, the collection of products and services offered by them on their platform is limited.

 Variety of sales channels

Private insurers are constantly implementing new sales channels like Bancassurance, Point of Sale Agents, Web aggregators, etc. However, government insurers are still heavily dependent on its traditional approach of sales via agents, rather than focusing on other sales channels.

Conclusion

According to the IRDAI guidelines, every insurance company, whether public or private, must stand honest to the policy statements and provide all the benefits of the policy to its customers. Also, every individual should go through the terms and conditions of the policy properly before purchasing it.