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New staff incentive: Huge insurance

Freny Patel | November 18, 2004 12:21 IST

Keyman policies, or insurance cover for key corporate personnel and high networth individuals, are being increasingly written by insurers.

The Life Insurance Corporation of India this year received a proposal from an individual to buy a risk cover of Rs 1,000 crore (Rs 10 billion)!

Earlier, keyman policies were bought by corporate entities in the name of top management individuals whose importance was key to the growth of the corporate entity.

Mukta Arts bought a keyman cover on the life of its director and film moghul Subhash Ghai for a sum assured of Rs 18 crore (Rs 180 million).

An unnamed exporter bought a cover of Rs 50 crore (Rs 500 million) from LIC, the largest individual policy the insurance giant has sold so far.

Similarly celebrities buy large-sized policies every year as well, since their years of stardom could be limited. It's been reported that one Bollywood actress has over 300 policies in her name!

Today, however, keyman covers are often 'gifted' to individuals to ensure that they stay back in the organisation.

"With the IT sector attracting huge turnover rates of 25 per cent plus, these employee benefit schemes are taking off well in India, and is one of our focus areas," said Andrew Clarke, executive vice president (corporate broking) at Aon Global Insurance Services.

Similar to offering gratuity to employees, large-sized covers are more popular as the sums can be relatively higher than the actual salary packages.

Further, employees can opt for a variety of covers like lifetime policies or moneyback covers, provided he stays with the company for 5 years, says Clarke.

"This works out as a carrot to retain employees and thereby reduce cost of training new talent at BPOs," he adds.

In the above cases it is not the individual who bears the burden of meeting premiums. But if an individual today thinks of buying large-sized covers, there are a number of aspects he must consider, even if he is a high networth individual.

The most important aspect would be to ensure that the cover is commensurate with one's current and likely future financial position.

A person who has a high income or is likely to be earning high amounts in the future, would have a high sum assured. Insurance companies do not just undertake a medical underwriting but more importantly a financial underwriting when they underwrite such large-sized policies of over Rs 5 crore (Rs 50 million).

Another thinks aspect insurance companies check is whether the individual is a first-time buyer. If so, they check the salary level to ensure affordability of the cover, says Philip Scott, group executive director, Aviva Plc.

"The larger the policy, the more information I want as large claims are subject to frauds as well," he adds.

There have been a number of cases where proposals have been declined, as insurers smell a rat.

This is especially true of Indian women, where the beneficiary would be the spouse. Further an individual in rural India would not find it easy to get a cover of Rs 50 lakh (Rs 5 million).

"We evaluate the legitimacy of the size of cover a person has applied for, as we believe that the sums assured for our customers need to be prudent," points out Shikha Sharma, managing director ICICI Prudential Life.

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