Reach of life insurance
Family is the most important thing to anyone. But what would happen to your family if you did not go back home today? Considering the worst -- an unforeseeable tragedy, would your family have the same home and status they enjoy today? Would your loved ones be able to pay house rents or an instalment on a bank loan? How can you be certain that you can give and provide for your family, even after death?
The answer could be in life insurance.
With it, one can ensure that in the event of death, the family is protected. The idea of having an effective life insurance policy is to take care of the family.
Insurance began as a way of reducing the risks of traders, ship owners and individuals.
Life insurance has several hundred years of history. In ancient Rome, 'burial clubs' covered the cost of members' funeral expenses and helped survivors monetarily. But modern day life insurance started in the 17th century in England.
Life insurance was introduced in Bangladesh in the pre-independence period with the opening of business by the then American Life Insurance Company, popularly known as ALICO (now Metlife Alico).
Although the business of life insurance has developed a lot over the years in Bangladesh, people still perceive it to be an underground business of sorts. It is also evident in the number of policyholders.
According to insurers, only four persons out of 1,000 have a life insurance policy in Bangladesh. The number is 37 in India and 21 in Pakistan. In developed countries, an individual may even have four to five policies.
People are still somewhat less interested about life insurance policies that can give them and their families a big support in the event of death or an accident.
“There is a huge prospect of the life insurance business in Bangladesh. But we have also got limitations,” said Ekramul Ameen, managing director of Fareast Islami Life Insurance.
According to Ameen, the limitations include a serious shortage of experts, product design and development, and an absence of rules and regulations.
“The level of transparency must be raised to attract people into taking out insurance policies,” he said.
Fareast is a fast growing life insurance company. The company's 'Life fund' now stands at Tk 1,352 crore.
There are 19 life insurance companies in Bangladesh, including one state-owned. These companies could not even bring one percent of the country's 160 million population base under the umbrella of life insurance policies.
Life insurance may be divided into two basic classes -- temporary and permanent -- or the following subclasses -- term, universal, whole life and endowment life insurance.
Term assurance provides life insurance coverage for a specified term of years in exchange for a specified premium. The policy does not accumulate cash value. Term is generally considered 'pure' insurance, where the premium buys protection in the event of death and nothing else.
There are three key factors to be considered in term insurance: face amount (protection or death benefit), premium to be paid (cost to the insured), and length of coverage (term).
Various insurance companies sell term insurance with many different combinations of these three parameters. The face amount can remain constant or decline. The term can be for one or more years. The premium can remain level or increase.
The insurer calculates the policy prices with intent to fund claims to be paid and administrative costs, and to make a profit. The cost of insurance is determined using mortality tables calculated by actuaries who are professionals.
The three main variables in a mortality table are: age, gender, and use of tobacco.
There are many allegations that insurers exploit people and do not want to pay the claims, although they keep on motivating people to purchase a life insurance policy.
“Ninety percent of people have a negative attitude about insurance,” said Dipen Kumar Saha Roy, deputy managing director of National Life Insurance, one of the biggest insurers in the country.
“These days, more people are interested in purchasing life policies, seeing friends and family benefiting from it,” said Roy.
He credited development of the industry on the companies. The government did not do anything to help the sector flourish, he added.
“Although life insurance is a permanent business, a company has to renew its licence every year by paying Tk 3.5 for every Tk 1,000 premium, which is very high,” said Roy.
Insurers said a lack of actuaries is another big problem that hinders growth of the sector. Actuaries employ actuarial science, based on mathematics (primarily probability and statistics), to develop a product, and value and revalue assets. Mortality tables are statistics-based tables showing expected annual mortality rates. It is possible to derive life expectancy estimates from these mortality assumptions.
There are only four actuaries in Bangladesh. Of them, two live abroad.
“We are thinking of developing our products from outside Bangladesh at higher costs because of the crisis,” said Ameen of Fareast.
But even doing this with the help of foreigners has also become a problem. The newly formed Insurance Regulatory and Development Authority imposed an embargo on employing an actuary living abroad.
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