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A PROJECT ON
LIFE INSURANCE IN RURAL SECTOR

Submitted by:

Nikita Ganesh

15040142014

BBA LLB-A

2015-2020

Submitted to: Sujith Suerndran P

Alliance School of Law

Alliance University, Bangalore
15nd April, 2019
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INDEX OF AUTHORITIES

PART-1 Synopsis Pg. 3-4

1. Title Pg.3
2. Statement of Purpose Pg.3
3. Research Methodology Pg.3
4. Review Literature Pg.3
5. Tentative Chapterisation Pg.4
6. Select Bibliography Pg.4
PART-2 LIFE INSURANCE IN RURAL SECTOR Pg. 5-7
CHAPTER- 1 Introduction
1.1 What is life insurance? Pg.5
1.2 What is the importance of life insurance? Pg.5
1.3 Development of life insurance in India Pg.6
1.4 Life insurance in rural sector Pg.7

CHAPTER-2 Life insurance in rural sector Pg. 8-12

2.1 Chapter of the project will deal with what is Rural Sector Pg.8
2.2 why should Life Insurance Companies go Rural Pg.8
2.3 Present scenario in Rural sector Pg.9-10
2.4 challenges that are faced by life insurance in Rural sector Pg.11
CHAPTER-3 Conclusion and suggestions Pg. 13
Bibliography Pg. 14
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PART-1
SYNOPSIS

1. TITLE

This project is on Life Insurance, the researcher will focus on the concept of rural life insurance

2. STATEMENT OF PURPOSE-

a. Problem Statement- What are the challenges that are faced by the Life Insurance Companies
while penetrating the rural market?

b. Objective- The objective of this paper is to make a detailed analysis on the concept of rural
like insurance. The researcher will also identify the concerns and the various opportunities that
the rural sector has to offer.

3. REASARCH METHORDOLOGY

This research is a Doctrinal research. Doctrinal research is the theoretical study where mostly
secondary sources of data are used.

4. REVIEW OF LITERATURE

a. Ajit Ranade, Rajeev Ahuja ‘ Life Insurance in India : Emerging Issues’ (1999), Economic and
Political Weekely- This paper helps in understanding what are the challenges faced by LIC in achieving
diversity and market penetration pertaining to the rural sector.

b. Akshay Deep Kala, Naveen Goud Gajja ‘ Growth if Insurance in Rural Areas’ (IOSR) Journal of
Business and Management- This paper provides an insight on why is it necessary for Life Insurers to
extend policies to the rural sector.
c. Rajeev Ahuja ‘ Health Insurance for the Poor’ (2004) Economic and Political Weekly, Vol. 39 No.28
p.3171-3178- This paper helps in drawing a parallel between life and health insurance in a rural sector, it
helps in providing suggestions to improve market penetration of life insurance in the rural sector.
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d. Shoaib Alam Siddiqui ‘Life Insurance: Challenges and Opportunities Rural India’ (2017)- This paper
helps in providing a detailed analysis on what are the problems that are faced by the Life Insurers while
penetrating the rural market. This paper helps in providing recommendations for better market
penetration.

5. TENTATIVE CHAPTERISATION

The project will be divided into 3 chapters-

The 1st chapter will introduce the project. The concept of life insurance will be studied in detail, it will
also deal with the importance of life insurance, the development of life insurance in India and the concept
of rural life insurance will be introduced.
The 2nd chapter will deal with the concept of Rural Life Insurance. It will define what is a rural sector, the
opportunities in rural sector in relation with life insurance and what is the present scenario will be dealt
with. This chapter will also bring out the challenges that are faced by the rural sector, it will help in
coming to a conclusion.
The 3rd and final chapter is the conclusion of the said project, it will also provide recommendations for the
topic in hand.

6. SELECT BIBLIOGRAPHY

 Shoaib Alam Siddiqui ‘Life Insurance: Challenges and Opportunities Rural India’ (2017)

 Ajit Ranade, Rajeev Ahuja ‘ Life Insurance in India : Emerging Issues’ (1999), Economic
and Political Weekely, Vol. 34,

 Akshay Deep Kala, Naveen Goud Gajja ‘ Growth if Insurance in Rural Areas’ (IOSR)
Journal of Business and Management

 Nagaraja Rao, Satyapriya Periyasamy. (2014, September). Life Insurance Penetration in

Rural Areas-Indian Perspective.

 Rajeev Ahuja ‘ Health Insurance for the Poor’ (2004) Economic and Plitical Weekly, Vol.
39 No.28 p.3171-3178
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PART-2

LIFE INSURANCE IN RURAL SECTOR

CHAPTER-1
INTRODUCTION

1.1 What is Life Insurance?

Life Insurance is a contract in which one party agrees to pay a given sum upon the happening of
a particular event contingent upon the happening of a particular event contingent upon the
duration of life in exchange of the payment of consideration. The person who guarantees is
called the insurer, the amount guaranteed is called the policy amount, and the person on whose
life payment is guaranteed is called insured or assured. The particular event on which payment is
to be made is either death or majority. The consideration paid is called premium and the
document containing the contract is called the policy.

A life insurance contract is a long term contract and the insured is required to pay the premium at
agreed intervals. At the end of the stated period, the sum assured is paid back to the insured
himself on maturity or his legal representatives and dependence in case of his premature death.1

The term has no statutory definition. In the case of Dolby v. London and Indian Life Assurance
Company2 the term was defined as- “A contract to pay a certain sum of money on the death of a
person in consideration of the due payment of a certain annuity for his life calculated according
to the probable duration of life.”

1.2 Importance of Life Insurance

a) Temporary needs/ Threats- The main purpose of a life insurance policy is for providing a
replacement of income on death, typically in a case of the breadwinner dying a premature death.

1 Avtar Singh, Law of Insurance, (2nd edn, Eastern Book Company Lucknow, 2010)
2 Dolby v. London and Indian Life Assurance Company (1884) 15 CB 365
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b) Retirement- Provisions for one’s own later years is very important, especially in a changing
cultural and social environment.

c) Minimizing Risk- Life cannot be compensated by anything but financial help. An earning
member in a family who wants to secure his family who are financially dependent needs a life
insurance. Factors like the level of income are essential in determining the amount of life
insurance.3

d) Tax Savings- If people have an option of risk coverage with guaranteed return and tax saving
they will surely prefer it. Generally policyholders take into account the tax benefit under Section
80C.4

1.3 Life Insurance Sector in India

Life insurance was started in India in 1818 by the “Oriental Life Insurance Company” mainly by
the Europeans from England to provide insurance to English widows. Foreign insurance
companies had profound dominance in this market even after the establishment of the first Indian
life insurance company, viz. Bombay Mutual Life Assurance Society in 1870.5
The main characteristic of such foreign companies was that they invested the proceeds of
premium outside India so the Indian economy was not benefited thereby. This development,
however, took place in the informal sector. The development of insurance business in the
formal sector took momentum after the ratification of The Life Insurance Companies Act
and The Provident Fund Act, in 1912. A more comprehensive legislation was, however,
introduced in India under the Life Insurance Act of 1938 to ensure strict control over
insurance business and an effective check on large-scale frauds that had evolved in this business
during the 1930‘s. Life insurance business got a boost in independent India rightly from the eve
of the planning era on account of its capacity to mobilize resources from the cross section
of population, and to channelising them in productive activities.6

3 Shashidhara K ‘ Life Insurance in India’ (Shodganga,

2000)http://shodhganga.inflibnet.ac.in/bitstream/10603/113063/7/07_chapter%201.pdf Accessed on 10 April 2018
4 Ibid
5 Shoaib Alam Siddiqui ‘Life Insurance: Challenges and Opportunities Rural India’ (2017) 10. 2147/IJAR01/5130
6 Ibid
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At the end of 1956, 154 Indian life insurance companies, 16 non-Indian companies and 75
provident fund societies were providing life insurance policies in the country. The
Government of India, however, nationalized these business units, and amalgamated them
under Life Insurance Corporation of India (LIC) in 1956 with a view to examine the structure of
the insurance industry and to assess its strengths and weaknesses in terms of the objective of
creating an efficient and viable insurance industry providing wide range of insurance services to
the masses and an effective instrument for mobilisation of financial resources for the successful
implementation of Five Year Plans.

The year 1991, however, witnessed a paradigm shift in India‘s overall development strategy.
The impacts of these new economic policies on LIC have been enormous. Keeping these
in view, a Committee on Reforms in the insurance sector was set up in 1992 under the
Chairmanship of R.N.Malhotra, which submitted its recommendations in 1994, was accepted
in principle by the December 1999, thus heralding an era of liberalization in the country‘s
insurance sector. The setting up of Insurance Regulatory and Development Authority (IRDA)
and opening up of Insurance Business (life and general) to foreign capital up to 26 per cent were
the initial steps in this direction. It is widely acknowledged that the opening up of the insurance
sector has been aimed at ushering in greater efficiency in the insurance business by
maximizing productivity and minimizing transaction cost.7

1.4 Life Insurance in Rural Sector - Study in hand

The spread of life insurance in India and the spread of life insurance in rural areas is of
increasing concern. The Malhotra Committee in its report mentioned about the poor
performance of life insurance companies in the rural sector and the implications of penetration
of life insurance in the rural markets.

There are many opportunities and potential in Rural Sector. This project will deal with the
various opportunities of life insurance in the rural sector and the challenges and problems that
are faced and recommendations for better penetration of Life Insurance Companies in the rural
economy of India.

7 Ibid 5
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CHAPTER-2
LIFE INSURANCE IN RURAL SECTOR

This Chapter of the project will deal with what is Rural Sector (2.1) why should Life Insurance
Companies go Rural (2.2) Present scenario in Rural sector (2.3) and the challenges that are
faced. (2.4)

This will help to come to a concrete conclusion on the present scenario of Life Insurance in
Rural sectors and what came be done to further improve or better the current scenario and
provide recommendations for the same.

2.1 What is Rural Sector?

The term “Rural Sector” does not have a clear definition as all government bodies do not have
the same definition.

The Reserve Bank of India defines rural areas as those areas with a population of less than
49,000 population.8

The Insurance Regulatory and Development Authority Act, 1999 defines the rural sector as
―Rural sector shall mean any place as per the latest census which has: (i) a population of not
more than 5,000; (ii) a density of population of not more than 400 per square kilometer; and (iii)
at least 75% of the male main working population is engaged in agriculture.

2.2 Why should insurance companies penetrate rural market?

Competition is supposed to bring a wider choice of product at a lower price to consumers, better
customer services, higher returns to policy holders and so on. Though LIC had grown in terms
of business volume till the year 1999, it was staggered in terms of geographical spread as well
as in terms of the number of lives covered. Mainly, the live insurance business was confines
only to big cities, and within the cities, the most affluent sections of the society.

The census of 2011 show that the rural sector in India comprises of 68.64% of the total
population and generate about 26% of the GDP. This makes the rural sector very important.

8 In focus, ‘rural India: where is it?’( December 1 2010) https://www.dhanbank.com/pdf/reports/InFocus-

December%201,%202010.pdf accessed on 12 April 2019
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Rural insurance has been emphasized since the nationalization of life insurance business in
1956. LIC had followed a three pronged strategy for life insurance. Firstly, it targeted the
rural wealthy with regular individual policies. Secondly, it offered group policies to those who
could not afford individual policies. Thirdly, for the very poor, it offered government-
subsidized policies. It was noted in the section on regulation that, after five years of
operation, every private sector life insurance company has to achieve a certain proportion of
their business in the rural sector. It is a variable and rising proportion, with at least 15% of
business in the rural sector after five years. It is 18% for Life Insurance Corporation of India.9

Need to go Rural-

a) Larger Population- The rural sector in India has the highest growth rate. India’s one billion
population lives in villages or rural areas, this shows the immense potential that this sector has
in terms of volume.10

b) Rise in rural prosperity- There has been a shift in India in relation with prosperity in rural
households. To drive home the potential of rural India just consider some of these impressive
facts about the rural sector. As per the National Council for Applied Economic Research
(NCAER) study, there are as many middle income and above‘households in the rural areas as
there are in the urban areas. There are almost twice as many lower middle income‘households in
rural areas as in the urban areas11.

2.3 Present scenario in Rural Sector

The penetration of life insurance in rural sectors in India compared to international standards is
comparatively low which has been one of the main reasons for reforms in this sector. The poor
performance of the life insurance industry was mentioned by the Malhotra Committee in a
report.

The IRDA had recommended some mandatory obligations for all insurers in the life insurance
industry. All these insurers have to provide some coverage for rural ans social sectors as
stipulates in the Regulations, 2002, which deals with the Obligations of Insurers to rural or

9 Desai, G. R. “Life Insurance in India: Its History and Dimensions of Growth”, Macmillan Press, New Delhi,
10 2011 Census of India
11 http://www.ncaer.org/uploads/annual-report/pdf/annual_report_20_Annual%20Report%202017-18.pdf
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social sector. Life insurance companies have to maintain the following obligations according to
the IRDA regulations, 2002-

(a) five per cent in the first financial year;

(b) seven per cent in the second financial year; (c) ten per cent in the third financial year;

(d) twelve per cent in the fourth financial year; and

(e) fifteen per cent in the fifth year of total policies written direct in that year.

In respect of rural sector:-

(1) eighteen per cent (18 %) in the seventh financial year,

(2) nineteen per cent (19%) in the eighth and ninth financial year, and

(3) twenty per cent (20 %) in the tenth financial year, of the total policies written direct in that
year.

Taking into consideration the IRDA obligatory regulations on rural and social sector, LIC’s new
business policies increased its business in these sectors. Until 1999-00 only 16 % of the policies
of LIC was written to the rural sector, by the end of 2008, upto 21.67 % of the policies was from
12
the rural sector. The growth rate of the rural sector is increasing because of the IRDA
regulations.

Many Life Insurance Companies in India have focused on penetrating the rural market. An
analysis of data of seven life insurance companies for 2015-16 which accounted for more than
80% of the life insurance market, reveals that all of them achieved their individual targets laid
down by IRDA. The seven insurers are Aviva Life Insurance Co. India Ltd, Birla Sun
Life Insurance Co. Ltd, ICICI Prudential Life Insurance Co. Ltd, Life Insurance Corporation of
India (LIC), Max New York Life Insurance Co. Ltd. Reliance Life Insurance Co. Ltd and SBI
Life Insurance Co. Ltd.13

12 Ibid 6
13 IRDA annual Report; 2007- 2008
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During the year 2017- 2018, most of the private sector life insurance companies had fulfilled
their rural sector obligation.

In spite of this development the rural life insurance penetration is still below any standard.
According to a report “Insurance in Next 2 Years‟, May 2008, out of 78% households
having awareness about life insurance in rural India, only 24% were policy owners.
Rural India may offer a business opportunity worth US$ 23 billion for the insurers if
the segment can be wooed with innovative schemes at affordable premiums.

2.4 Challenges faced in Rural Life Insurance Sector-

There is a need to introduce more customized life insurance (individual and group)
products for the lower income strata as well as a major part of rural market is being constituted
by these people only. With the advent of such new customized insurance products, poor people
will entice to have such benefits for future eventualities. The introduction of such products does
not end the obstacles for the development of the life insurance in rural India.14

In 2008 out of total branches of all life insurers operating in India, only 32% was from
rural areas15. The very next and crucial problem is to provide services to the existing
policyholders. Renewal collection is a big problem as in case of low premium policies, agents
don‘t focus on the collection as their commission is meager. In case of micro insurance
products, the main factors behind showing less interest by the Insurers are especially for
rural market is high cost of servicing the product and the difficulty in distribution of micro-
insurance products. In India, it is often considered that a micro insurance (life) policy is a low-
premium insurance policy.

It is often found that the low-income clients are unfamiliar with the concept of life
insurance, especially life insurance, requiring a different set of new approaches to contracting
to insurance products.

According to the study of CGAP Working Groups on Micro-insurance, 2005, there have some
unverified report that few private life insurers are dumping poorly serviced micro- insurance

14 Garand (2005), ―Vimo SEWA, India,‖ Good and Bad Practices in Micro insurance, Case Study No.16,
International Labour Organization, Geneva.
15 Ibid
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products to meet the quota requirements and some are stop selling insurance products (including
micro insurance products) once they meet their target (Rural or Social Sectors) which was
specified by the regulator, IRDA.16

16 Ibid 3
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CHAPTER-3
CONCLUSIONS AND RECOMMENDATIONS

The life insurance in rural markets have not done well and more effort is required to penetrate
the untapped rural market. The Indian rural life insurance has great potential. It is evident that
LIC has a better hold of the rural market then many private companies. During the last few
years, many private companies like Reliance, Bajaj have closed their branches in rural areas.17
The payback period in the case of rural sector is longer.

Some of the recommendations for better penetration in the rural sector are as follows-

a) Bank Assurance, Rural Development Banks: As people see banks as trustworthy so

insurer‘s partnership with banks in selling life insurance will be beneficial for all. As they
believe that just because of selling insurance, banks will not close down their branches.18

b) Post Office: Rural population is scarcely distributed and hence it is time taking and costly to
reach all the potential people. As post office has a very good network in rural India and hence it
will be very beneficial for both the post office and insurers to start selling products also through
post offices.19

c) Insurance mobile van: this is a very good concept, a van well dressed with flex boards
of life insurance products can be used, it should have sound system so that pre-recorded
company ads can be played. This will move from one village to another. There should be some
official from insurance company with proposal forms and product brochures that can be filled
that time only.

17 Ibid 5
18 Ibid 3
19 Rajeev Ahuja ‘ Health Insurance for the Poor’ (2004) Economic and Political Weekly, Vol. 39 No.28
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BIBLIOGRAPHY

Books Referred-

 Avtar Singh, Law of Insurance, (2nd edn, Eastern Book Company Lucknow, 2010)

Research Papers Referred-

 Shoaib Alam Siddiqui ‘Life Insurance: Challenges and Opportunities Rural India’ (2017)
 Ajit Ranade, Rajeev Ahuja ‘ Life Insurance in India : Emerging Issues’ (1999), Economic and
Political Weekely, Vol. 34,

 Akshay Deep Kala, Naveen Goud Gajja ‘ Growth if Insurance in Rural Areas’ (IOSR) Journal of
Business and Management
 Nagaraja Rao, Satyapriya Periyasamy. (2014, September). Life Insurance Penetration in Rural
Areas-Indian Perspective.
 Rajeev Ahuja ‘ Health Insurance for the Poor’ (2004) Economic and Plitical Weekly, Vol. 39
No.28 p.3171-3178
 Naylor, C D Jha P, Woods J and A Sheriff (1999): A Fine Balance: Some Optionsfor Private and
Public Health Care in Urban India, The World Bank, Washington, DC.

News Paper Articles Referred-

 http://www.businessworld.in/article/Rural-People-To-Get-Affordable-Life-Insurance-Services-
Manoj-Sinha/13-10-2017-128541/

 https://economictimes.indiatimes.com/news/irdai-asks-insurance-companies-details-of-social-
sector-business/articleshow/53030045.cms

Online Sources Referred-

 http://shodhganga.inflibnet.ac.in/bitstream/10603/113063/7/07_chapter%201.pdf
 https://www.bankbazaar.com/miscellaneous-insurance/rural-insurance.html
 https://www.icicilombard.com/online-insurance-info/rural-insurance-sector-in-india.html
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