The union government is set to launch two insurance schemes, along with one for pension, under the Jan Suraksha Yojana. Examine the objectives, features and viability of these schemes. (200 Words)
Government has recently launched Jan Suraksha Yojana. This is a measure for social security. Under it there are three schemes – two are insurance schemes and one is pension scheme.
- Suraksha bima yojana – this is accident death insurance scheme.
- Jiwan jyoti bima scheme – this is life insurance scheme
- Atal pension scheme – this is new pension scheme.
Objectives of this Jan suraksha yojana
- To provide social security to people at low cost
- Financial inclusion
- Use the money (got from these schemes) for productive use
Features of this yojana:
- Affordability: through low premium; Rs 12 a year for accident insurance and Rs 330 for life term product; cover of Rs 2 lakh on each; even BPL can buy coverage.
- Financial inclusion: subscriber must have a bank account; which is linked to an auto-debit facility.
- Focus on unorganized sector: through Atal pension Yojana; provides fixed minimum pension between Rs 1000 to Rs 5000 per month to start at age of 60 years; depending upon contribution exercised between age of 18-40 years.
Concerns:
- While these schemes may swell up business volumes due to very low premiums, the pricing may not be sustainable in the long run. In the event, premiums are increased, renewals might not be forthcoming.
- If the scheme fails to attract large subscriptions, claims settlement and post policy service handling are expected to face issues
- While the schemes are mandatory to be offered by public sector insurance companies, it is optional for private insurers. This defeats the purpose of universality of these schemes.
- Overburdened banks: will have to devote additional manpower to take care of claims.
While a welcome step, given the dearth of insurance products for low income individuals, the above concerns about the initiative’s viability need to be addressed.
Critically comment on the design, objectives and potential of recently launched Atal Pension Yojana (APY). (200 Words)
Aimed at providing social security to the unorganized sector in India which constitutes a whopping 86% of the total working population Atal Pension Scheme (APS) is more or less on the same lines as initiatives like Rajiv Gandhi Equity Savings Scheme (RGESS) and Swawlambhan Yojana.
Design:
- Any India between 18 to 40 years of age who is not a member of any statutory social security scheme and who invests for a period of at least 20 years will get a fixed pension of 1000-5000 a month from 60th year till they die.
- Government will contribute 50 % of the subscriber’s contribution or Rs. 1000 a year whichever is less, for a period of 5 years, the contribution will vary with the age.
- Interest rates earned during accumulation and withdrawal stages are around 7%.
- On non-contribution for a period 6 months accounts will be frozen, for 12 months accounts will be deactivated and for 24 months accounts will be closed, while constantly attracting fines for the full period of non-payment.
Problems:
- Non-marketability: due to very less returns the intermediaries will have no incentive of selling APS, so it solely depends on the eagerness of the investors.
- Low return on investment if inflation is taken into account the picture becomes worst. For most of those living in urban areas, a pension of Rs5,000 per month will be insufficient. For example, for a 40-year old who will have 20 years till retirement, a pension of Rs5,000 will be worth just Rs1,292 i.e. Rs40 per day. This is assuming a very ‘conservative’ rate of inflation of 7%. We all know that the rate of inflation will be much higher in urban areas.
- The growth rate of the corpus is still lower than the one-year bank FD rate which is around 8%-8.50% p.a.
- Though laudable but the discipline with which contributions are expected and penalties are imposed will discourage the rural working population 85% of whom are much below the minimum wage.
- Near sighted rural poor would not find it lucrative to invest for 20 years and reap benefits for an uncertain period ranging from 6-7 years. (Life expectancy of India being 67, which is even worse in case of poor)
Though the schemes objectives a very noble to provide a security net to the poor and has a lot of potential given the vigour the government wants to push the scheme, but the above bottlenecks if ignored can prove major stumbling blocks, in the smooth implementation of the scheme.
Critically analyse the merits and demerits of recently launched Suraksha Bima Yojana and Jeevan Jyoti Bima Yojana schemes. (200 Words)
The Government of India launched two social security schemes Pradhan Mantri Suraksha Bima Yojana and Pradhan Mantri Jeevan Jyoti Yojana.
Suraksha Bima Yojana provides accidental or disability insurance cover of 2 lakhs for people between 18-70 years at a premium of Rs. 300 per year.
Jeevan Jyoti Bima Yojana will provide life insurance cover of 2 lakhs to people at a premium of Rs. 12 per year.
Merits:
- Low and affordable premium rates
- Forms are easy to fill and will be easier for rural people to fill them and get them enrolled.
- Government is acting as a facilitator and subscriber is paying for it. So government is not again paying like we had done from Independence for vote bank and not putting much load on government finances.
- It will help in financial inclusion as lot of people will not have to pay for health related issues now. So a burden will go down.
Demerits:
- No medical test: Currently insurance companies are not doing any medical tests for subscribers but they are taking a self-declaration from the applicant that he or she does not suffer from medical issues.
- Lot of people don’t read these instructions and they themselves don’t know about their diseases. So lot of people will not get their claims later on and these insurance companies will deny it.
- There will be lot of false claims but rural people and government is pushing on the insurers to waive the usual process of investigating thoroughly deaths within one year of buying the policy. Many times there are lot of foul plays both by people.
- Attitude of insurance companies is such that they look for every possible way to deny the claims .They simply follow this motto of “deny if you can, pay if you must”. They apply this day in and day out to even well-educated people. Many times they change the terms, insured amount and lot many frauds.
- Jeevan Jyoti Scheme lapses when you cross 55 when it is most needed.
- After 3 years or due to unforeseen circumstances like many claims, the premium rates of Jeevan Jyoti may well go up or the government may have to subsidise then.
- The process of locating the nominee would be tough task as well due to most targeted people being migrant labour