In India, insurance has a deep-rooted history.

It finds mention in the writings of Manu (

Manusmrithi ), Yagnavalkya ( Dharmasastra ) and Kautilya ( Arthasastra ). The writings talk in
terms of pooling of resources that could be re-distributed in times of calamities such as fire,
floods, epidemics and famine. This was probably a pre-cursor to modern day insurance. Ancient
Indian history has preserved the earliest traces of insurance in the form of marine trade loans
and carriers’ contracts. Insurance in India has evolved over time heavily drawing from other
countries, England in particular.

1818 saw the advent of life insurance business in India with the establishment of the
Oriental Life Insurance Company in Calcutta. This Company however failed in 1834. In 1829, the
Madras Equitable had begun transacting life insurance business in the Madras Presidency. 1870
saw the enactment of the British Insurance Act and in the last three decades of the nineteenth
century, the Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) were started in
the Bombay Residency. This era, however, was dominated by foreign insurance offices which
did good business in India, namely Albert Life Assurance, Royal Insurance, Liverpool and London
Globe Insurance and the Indian offices were up for hard competition from the foreign
companies.

The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there
were a large number of insurance companies and the level of competition was high. There were
also allegations of unfair trade practices. The Government of India, therefore, decided to
nationalize insurance business.
 
An Ordinance was issued on 19 th January, 1956 nationalising the Life Insurance sector
and Life Insurance Corporation came into existence in the same year. The LIC absorbed 154
Indian, 16 non-Indian insurers as also 75 provident societies—245 Indian and foreign insurers in
all. The LIC had monopoly till the late 90s when the Insurance sector was reopened to the
private sector.
 The Indian insurance market in spite of having a history covering almost two centuries
took a turn after the establishment of the Life insurance corporation in India in 1956. From
being an open competitive market to being nationalized and then back to a liberalized market
again, the insurance sector has witnessed all aspects of contest.
 Future of Indian Insurance Market

As per the report of 'Booming Insurance Market in India' (2008-2011), concentration of

insurance markets in many developed countries of the world has made the Indian insurance
market more magnetic in terms of international insurance players. Furthermore, the report
says

 Home insurance sector is likely to achieve a 100% growth since home insurance are
made compulsory for housing loan approvals by the financial institutions.
 In the coming three years Health insurance sector is all set to become the second largest
business after motor insurance.
 During the period of 2008-09 to 2010-11 the non life insurance premium is likely to have
a growth of 25%.

Share of foreign companies in Indian insurance market is 26% in 1999 but the expected hike in
Foreign Direct Investment (FDI) cap to 49% is also expected to boost industry growth

 Position of India in world insurance market

For the first time moved up the ranking to be among the top 10 life insurance markets
worldwide in fy -09. thanks to the global financial crisis in this regard as it made the Indians to
think more about insurance. The economic Survey acknowledges this growth. The report for the
year `09-10 states that insurance sector penetration, both in life and non-life segments, has
improved since the time the sector has been opened for private participation.

Indian insurers feel that India can leapfrog to a position just behind China by growing faster
than other Asian countries like Korea and Taiwan which are still ahead of India.

According to V vaidyanathan, MD, ICICI Prudential, 40% of the growth in life insurance will
come from Asia. Within Asia India and China will contribute to 80% of the growth. "The Indian
industry will grow by 12-13% as against 5-6% global growth. India’s ranking will have to go up"
he said. He adds that industry growth in India is essential since no social security exists in India.
"Factors like a stable 8 per cent annual growth rate of the economy make India one of the most
promising amongst the emerging markets, with the potential to go beyond Korea and Taiwan"
said Rajesh Relan, MD, Metlife Insurance India. He adds that with nearly 80% of its 1.2 billion
population without life insurance, even a marginal increase in penetration would result in a
huge increase in volumes.
LIFE INSURANCE AS AN INVESTMENT

INVESTMENT ATTRIBUTES

The attributes that an investor looks into before making an investment decision are Return,
Risk, Liquidity, Tax Shelter and Convenience.

The long ranging controversy between the proponents of permanent insurance as an investment
and the advocates of insurance for the sake of protection will probably be never settled.In fact,
the assertion that any investment is ’good’ or ‘poor’ rests on a variety of unstated assumptions
that may or may not hold true for a particular set of circumstances.

 The first feature that supports life insurance as an investment is the compulsion it
entails.Many people do not have the self-discipline and determination required to follow
through with their plans for the regular communication of a savings fund.Once a policy is
taken out,an individual usually will pay the premiums rather than deprive the family of
the protection the policy gives,and paying the premiums means making regular
contributions to the savings elements of the contract.Frankly,this argument is not
particularly compelling.

 Another advantage of life insurance as an investment is that it enjoys tax advantages

that some other forms do not enjoy.First,the increments in the cash value are not taxable
until actually received by the insured.at the time the policy is surrendered,the excess of
the cash surrender value over the premium paid is taxable as ordinary income.Also the
insured is permitted to deduct the total amount of premiums paid,which includes the cost
of protection,in computing the gain.

 Finally there is a safety of principal not found in certain other investments.The major
criticism usually leveled at life insurance as an investment is the relatively low rate of
return-usually between 6 and 8 percent .Common stocks are riskier and the investor may
suffer losses.Traditional life insurance cash values are a guaranteed form of
investment,with safety of principal and guaranteed minimum rate of return.In
addition,the newer interest –sensitive policies make it possible to realize significantly
 higher returns than those guaranteed in the policy.Finally,for the investor who prefers the
appreciation potential of the common stocks,variable life insurance offers the same tax-
deferral as traditional cash value life insurance.

If the life insurance is to be considered as an investment,it should be LONG-TERM.

The most appealing feature of life insurance as an investment is its complementary functions of
providing protection against premature death at the same time it provides an accumulation that
may be used if the individual doesn’t die prematurely. If the individual has no need for protection
against premature death, it is unlikely that life insurance will match the other investment
alternatives.

At the risk of over simplification, the premium for cash-value life insurance covers three things

1.The first part goes to pay the death benefits for those members of the group who die

2.The second part goes to pay insurer operating expenses(including agents commission)

3.The third part contributes to the accumulating savings element

The individual who has no need for death protection but purchases life insurance as an
investment incurs cost for death benefits and commissions that are avoided with other
investments.To the extent that life insurance is an attractive investment ,its appeal is based
primarily on its role in simultaneously meeting the diametrically opposed risk of premature death
and superannuation.