Probability of accidental death

So I’ve received two separate SMSs from my bankers over the last few days. One of them asks me to sign up for the Pradhan Mantri Suraksha Bima Yojana at Rs. 12 per annum for an insurance against accidental worth Rs. 2 lakhs.¬†The other SMS asks me to sign up for a more general life insurance scheme (the Pradhan Mantri Jeevan Jyoti Yojana) by paying a premium of Rs. 330 per annum. Here is a poster that describes the two schemes:

Considering that you can insure yourself against all kinds of death for a premium of Rs. 330 per annum, and you can insure yourself against accidental death alone for a premium of Rs. 12 per annum, what this implies is that the probability of death by accident given death is 12/330 or 3.6%. Which seems rather low considering that it’s mostly the younger population that is covered by these insurance schemes!

That aside, it’s a good move by the government to increase insurance penetration. I don’t know about accidental death, but the rate on the life insurance is pretty good, and there is a reasonable cut for the banks too for distributing this instrument. And going by the principle that you should be insured for about 5-7 years’ of annual income, Rs. 2 lakhs is a decent amount (India’s mean¬†income is USD 1500 (~INR 90,000) per head. But the median income is likely to be much lower ).

Moreover, the implementation of these schemes is rather simple, since the premium directly goes from your bank account and you can sign up with a SMS, and there are no medical tests. Hopefully this scheme will take off and the insurance penetration in India will increase significantly.

As an aside, I wonder what impact this will have on the life insurance industry which thrives in selling plans that are a combination of insurance and investment. Now that this scheme shows off the real cost of insurance (Rs. 330 for a Rs. 2 lakh insurance), customers might become more discerning about these combo plans and see through the margins the insurers are making, and this may not be all that good for the insurers. Though this might be offset by these insurers themselves becoming underwriters to the government plan itself.

Disclosure: I’ve worked as a consultant with a leading Indian life insurance firm.