🛡️ The Secret Science of Safety: Why Your Insurance Premium is So Small

 


Have you ever wondered how an insurance company can pay a ₹1 Crore life cover when you only paid a ₹15,000 premium? It’s not magic—it’s the power of the "Group."

1. Risk Pooling: The "Joint Family" Logic

Imagine a small village in India where 1,000 young breadwinners decide to look out for each other. They each put ₹1,000 into a "Community Chest" every year.

  • The Total Chest: ₹10,00,000.
  • The Life Reality: Statistically, in a group of 1,000 healthy young people, the probability of someone passing away in a single year is very low—say, one person.
  • The Support: If that one tragedy happens, the ₹10 Lakh chest is given to that family.

In Life Insurance terms: This is "Mortality Risk Pooling." You aren't just buying a policy; you are joining a collective. The premiums of the many who live long, healthy lives provide the "Legacy" for the families of the few who leave too soon.

2. Reinsurance: The "Shock Absorber" for the Nation

What happens when the "unexpected" becomes "universal"? Think back to the COVID-19 pandemic. Suddenly, death claims didn't follow the usual statistics; they spiked across the country.

How did Indian life insurers pay out over ₹20,000 Crore in claims during the pandemic without going bankrupt? Reinsurance.

  • Your insurer doesn't keep all your risk. They pay a part of your premium to a "Global Reinsurer" (like GIC Re or Swiss Re).
  • When a "Black Swan" event like a pandemic or a massive natural disaster hits, the Reinsurer pays the "excess" claims.

Think of it this way: If Risk Pooling is a neighborhood umbrella, Reinsurance is a giant canopy covering the entire country. It’s the reason your claim check doesn't bounce, even when the world is in crisis.

💡 Why this matters to every Indian household:

  1. Life Insurance is the most "Selfless" Financial Tool: Your premium ensures that while you are protected, you are also helping another Indian family stay afloat today.
  2. Check the "Backing": When choosing an insurer, you aren't just looking at their brand—you are trusting the global network of reinsurers standing behind them.
  3. Stability over Savings: Unlike a bank FD, insurance is about "Solvency." Reinsurance ensures that the company stays solvent for 30–40 years until your family might need that money.

🚀 The Power Move

Next time you see a premium notification, don’t see it as a "loss." See it as your contribution to a global circle of protection. You are part of a system that makes sure no individual—and no family—has to face a financial catastrophe alone.

Let’s build a  India where every person who requires financial security is adequately insured .

#InsuranceBasics #FinancialLiteracy #LifeInsurance #RiskManagement #IndiaInsurance #PersonalFinance #Reinsurance #AshwaniThink #AshwaniSpeak #AshwaniNexus

Comments

Post a Comment

Popular posts from this blog

Maturing Indian Life Insurance sector in Individual Non single premium policies-Towards a better Insurance Coverage at cheaper cost.

       Assessing progress towards "Insurance for all by 2047" in the life insurance sector requires evaluating not only the number of policies sold, but also the evolution of risk cover (Sum Assured) and the cost of insurance. This analysis focuses on individual non-single premium policies, as Individual   single premium policies, often annuities , do not accurately reflect risk coverage trends.This is a study further to my previous study (Linked in- Beyond Policy Count:Analysing the growing sum assured   and declining Premium rates in Indian life insurance - https://lnkd.in/dKpYTH2y ) to get a confirmation of trend observed before. Examination of data across different timeframes, specifically comparing FY 2018-2019 with FY 2024-2025 , and integrating recent quarterly data (Upto 30 June 2022 and Upto 30 June 2025) , reveals a significant and consistent shift in the individual non-single premium life insurance landscape. While there has been an overall d...
Read more

Navigating the Emotional Landscape of Personal Investing: Avoiding Common Pitfalls

              Drawing upon years of experience in the investment field, I've observed a recurring pattern that significantly contributes to negative outcomes for individual investors: indisciplined and emotionally driven decision-making . While numerous pitfalls can lead to wealth destruction in personal investing, this fundamental flaw often underlies and amplifies many others. Emotional decision-making primarily manifests in three dist inct behaviors: Chasing Performance: When a stock experiences rapid, substantial gains (e.g., 20-25%), an emotional investor often perceives a missed opportunity. This "Fear of Missing Out" (FOMO) can lead them to purchase the stock near its peak, only to suffer significant losses when the price inevitably corrects. Panic Selling: During periods of market decline, an anxious investor, observing continued price drops, may succumb to panic and sell their holdings. This often occu...
Read more

🔸 Understanding Impact of GST Exemption on Individual Insurance 🔸

  56th  GST council meeting decsion to give  exemption to  individual life and health insurance policies from the Goods and Services Tax (GST)has significant implications for both insurers and consumers. 🔶 Key Changes to Insurance Taxation The new rates create a clear division for insurance products: ▪️ GST-Exempt (No Input Tax Credit - ITC) Individual Life Insurance,Individual Health Insurance Policies: All premiums paid on or after 22 September 202,including riders. ▪️ Government Insurance Schemes: Remain GST-exempt. 🔶 Still Subject to GST (with ITC) ▪️ Annuity and Pension Policies(*Clarity required) ▪️ Group and Corporate Insurance policies ▪️ General Insurance Policies (excluding health) 🔶 Implications for Insurers The GST exemption presents a complex challenge for insurance companies. The immediate impact is the non-availability of ITC on a significant portion of their costs. This will likely increase their operational costs. Initial estimates suggest ...
Read more