Consider the following statements:
- A rupee Vostro account is an account that an Indian bank holds for a foreign bank in the domestic currency (rupee) to enable domestic banks to provide international banking services.
- Insurance density, i.e., average insurance premium per capita does not fully capture the financing gap in the event of a premature death because most of the insurance products sold in India are savings-linked with a small component of protection.
Which of the statements given above is/are correct ?
Statement 2 is correct. Insurance density (average premium per capita) measures the penetration of insurance based on premium collection. However, in India, a significant portion of insurance policies sold are traditional plans that combine savings/investment with a relatively small life cover (protection component). While these policies contribute to premium collection and thus increase insurance density, the sum assured in case of the policyholder’s premature death might not be sufficient to cover the financial needs of the family, leaving a significant “financing gap” despite a seemingly higher insurance density figure. Therefore, insurance density alone may not fully reflect the adequacy of protection cover.
– Insurance density calculation may not fully reflect the adequacy of life cover due to the nature of policies sold in India (savings-linked).