Are you really helping the Little Guy, Mr Modi?

Last few weeks we have seen a cacophony of voices dubbing the Modi government pro corporate and Anti poor. Much of the commentary on this subject is political.  Frankly I find much of it hot air. However there is one new item that caught my Eye. It was Pradhan Mantri Jeevan Jyoti Bima Yojana. It is fact that most people in the country don’t have life Insurance and poor suffer the most. Families are often without any protection and have to face financial ruin in addition to the loss of an earning member. So when I first heard about the initiative I thought what a brilliant idea.

For those of you who don’t know, Pradhan Mantri Jeevan Jyoti Bima Yojana provides for life cover of Rs. 2 Lakhs for anyone between the ages of 18-50. The premium is Rs 330 per annum. In order to be eligible for this you need to have a bank account and your bank must have tied up with a Life Insurer willing to underwrite this cover. Overall it I think the concept is a good one and hasn't come a day late. One wonders why previous governments haven’t thought of it. 

I can also see what “Market driven” analyst must be thinking. Another populist scheme to bleed the tax payer. Is it really? Let’s see what the typical market rate for Life Insurance is.  The table below has the life Insurance premiums for a male aged 30 for 25 year.

Product	Sum Insured	Premium	Rate per Rs ‘000
Reliance Online Term	1,00,00,000	Rs. 7094	0.71
Aviva i-Life	1,00,00,000	Rs. 7292	0.73
ETlife My Life +	1,00,00,000	Rs. 6692	0.67
Max Life Online Term	1,00,00,000	Rs. 7865	0.786
Tata AIA I Raksha	1,00,00,000	Rs. 8314	0.786

If you work out the Math for Pradhan Mantri Jeevan Jyoti Bima Yojana, it comes to a rate per thousand of Rs 1.65 per thousand sum Insured. That is more than double of what a person buying on the open market pays.   The reinsurance rates for life insurance in India is around Rs. 0.67 per thousand. If you add service tax it comes to about 0.76 per thousand. The rate government is charging the poor is a 220 % premium on that.  That is plain language is predatory pricing.

Even if the government were to reinsure the entire amount they will pay no more than 0.76 per thousand rupees of Sum insured.   In all fairness, I should point out that there are no insurer who offer a cover of two lakhs and there are some transactional cost which are fixed and not dependent on sum insured. Even accounting for those a rate of 1.65 per thousand.

If you go by the thumb rule of required cover being 10 times the income. At 2L that is just adequate cover for someone earning less than Rs 2000 pm. That is well below the poverty line figure (going by the infamous Planning commission figures) for a family of 4. Rs. 330 is not a massive amount and for that price the cover would be easily doubled to Rs 4L. Additionally I think the Govt should allow people to top up on this cover. Most people would be happy to pay the market rate. All the government needs to do is to extend the access to this very important financial product to all at market rate. Hope Mr. Modi is listening.