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The Max New York Life - NCAER

India Financial Protection Survey

“How India Earns, Spends and Saves”


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reference to Max New York Life - NCAER India Financial Protection Survey.
The India growth story has clearly brought the spotlight on India. All
multinationals, political leaders and investors across the world are eager to
increase their India-focus. India has been witnessing over 8% economic growth
for the last three years and the country has virtually broken through the shackles
of the ‘Hindu rate of growth’ – a term coined by economist Raj Krishna to denote
the low economic growth witnessed in India during the 1950s to 1980s, as
opposed to the other East Asian economies. This term was widely used by
economists to express their dismay in the sluggishness displayed by the Indian
economy. But today, all that can be safely buried in the echelons of India’s
economic history.

Today, India has emerged as a manufacturing and knowledge hub to the world
and virtually all sectors of the economy are witnessing impressive growth rates.
The robust growth in the services sector has been instrumental in fueling India’s
growth engine. The success of our IT and ITES sectors, the vaulting of new age
domains such as biotechnology, are all no mean achievements.

However, while the sheen is unmistakable in our early accomplishments, it is

time to dig deeper and ponder over how sustainable is this growth. Are the
benefits of economic growth trickling down to everyone across the Indian
panorama? Are we, as Indians, becoming financially stronger? Or are we as
financially vulnerable as before?

If we, as individuals, are financially well-protected, our nation will emerge

financially stronger. Financial risk is essentially an assessment of earnings,
savings and spending behavior patterns in Indian households and the financial
products they invest in to protect against future financial risk. A financially
secure country cannot be built on the base of a small population of financially
secure households and hence, the question.


The Max New York Life – NCAER India Financial Protection Survey was
initiated to seek answers to this critical question. In order to be representative of
the broad reality, the survey was conducted across 63,016 households, out of a
preliminary listed sample of 440,000 Indian households. The sample truly
represents India in its varied demography.

A detailed analysis suggests that there is little awareness about the need for
financial protection. Despite accelerating economic growth, only a minuscule
proportion of the population can be considered well protected. The majority of
people have inadequate financial protection.

The findings of the survey reflect four key areas of concern. The first emanates
from the fact that an overwhelming majority of Indians are at risk, if they lose the
breadwinner, or the major source of their household income (income from rent,
business, agriculture etc). As per the findings, – 96% of households feel that they
cannot survive for more than one year on their current savings in case of loss of
major source of household income. Second, there is widespread misplaced
financial optimism amongst Indians - 54 % Indians are confident about their
current and future financial stability. The “nothing will happen to me” syndrome
stops them from going in for an adequate life cover. Third, while Indians are
great savers, they do not save wisely. Around 81% of Indian households save.
But the money they save is either lying in their homes, or in the banks. Majority
of India does not save for the long-term. And lastly, while awareness on life
insurance is high (78% of Indian households are aware of life insurance),
ownership of policies is low. Only one-fourth of the Indian households own a life
insurance policy.

Max New York Life – NCAER India Financial Protection Survey gives an
unparalleled view of the financial behaviour of Indian households – how they
earn, how they spend and how they save. The survey discovered several
challenges in the Indian market which are enumerated below.


I. Indian households are financially at risk

a) 96% Indian households are financially at risk on loss of the breadwinner

Conventional wisdom has it that accelerating economic growth has pulled many
Indians from under the poverty line and helped many more become prosperous.
While this is true, one of the key findings of the Max New York Life - NCAER
India Financial Protection Survey is that a fairly large percentage of Indian
households are financially at risk. Only 4% Indian households feel that they can survive
for more than a year on their current savings in case of death or disability of the chief

b) More than 25% of Indian households are financially at risk in the current
Financially at risk has been defined in two ways for the purposes of this study:
(a) Level 1 risk, which determines crude savings by subtracting routine
expenditure1 from income; and (b) Level 2 risk, which is determined by
subtracting routine expenditure and unusual expenditure2 from income.

At Level 1, most Indian households are financially protected. Only 10% of

Indians in the bottom income groups each in rural and urban India suffer from
extreme financial risk.

While the findings of extreme financial at risk broadly coincide with the official
estimates of poverty in India, Level 2 estimates of financial vulnerability suggest
that majority of Indians, even in relatively better-off households, are financially
at risk. At Level 2, ~ 28% of Indian households are financially at risk.

Financial risk is a gap between the income and expenditure and indicates the
household’s inability to meet their needs through the financial resources at their
disposal. This is in no way related to the prosperity of the nation which the data
indicates is growing. Thus, it is possible for Indian households to earn more as
economic growth accelerates, but their earnings might still not be sufficient to
cover their increased needs and they remain financially at risk.

1 Routine expenditure is defined monthly expenditure on food, housing, health, transport, education, clothing, & durables
2 Unusual expenditure is defined as medical, education, weddings, births and other ceremonies and travel

II. Misplaced financial optimism

The study clearly brings out that India is a country of optimists when it comes to
financial security. More than half the Indian households i.e. 54% were confident
about their current and future stability. But unfortunately the survey brings out
that this financial optimism is not based on facts. 96% of households feel that
they cannot survive for more than one year on their current savings in case of
loss of major source of household income and yet 54% households feel that they
are financially secure.

An overwhelming 41% are fairly confident about their financial well-being.

Another 13% feel “most confident”. Only about 15% of households are totally
uncertain about their major source of income. About half the rural households
and more than 60% of urban households are confident about their future
financial security. This clearly indicates that Indians do not take a long-term view
of their financial security and hence their optimism is misplaced.

Financially at risk urban Indians appear to be even more optimistic than their
rural counterparts. A higher proportion of households in the bottom two income
groups in urban India are confident of their future.

The findings of the survey clearly indicates that financial optimism of Indian
households is misplaced and there is a need for financial literacy for better
understanding of their financial risk.

III. Short-term perspective – India saves but does not invest wisely

a) Poor households invest and save, despite being constantly in debt

India continues to be a country of savers. An estimated 81% of households in
India save in one form or other. This is true of even financially at risk

The intent of savings is for the long-term – for emergencies, children’s education
and old age. However, savings are not invested in long-term instruments.
Around 51% deposit their savings in banks and 36% simply keep their savings at

Financially at risk urban households invest a larger proportion of their income
compared to rural India. Even amongst salaried households, 20% keep their
savings at home, while 68% put them in banks.

At the lowest income group, urban India invests almost 6% of income though
they have a deficit of roughly Rs 9,500 per annum, whereas rural India invests a
little over 3% having a deficit of approximately Rs 6,000.

b) Level of education and occupation of chief breadwinner impacts the level of

More educated the chief earner of the household; the higher is the propensity to
save. Graduates and above save approximately 30% of their income while non-
graduates save only 18% of their income.

IV. India borrows to spend, save and to meet planned and unplanned

a) Indians borrow mostly to cover routine expenditure

Unlike developed countries, food constitutes the major source of expenditure in
all Indian households. This is truer of rural households than urban. Reinforcing
the message of overall financially at risk, routine expenditure is a significant
reason for borrowing, especially for households at financial risk. Expenditure on
social events, which are generally planned such as marriage, birth etc., are
another major reason for borrowing across the income groups in both urban and
rural households.

In the case of rural households, health and medical treatment are the major
reasons why they borrow. In urban India, education constitutes one of the major
reasons for borrowing.

b) Indian households rely on informal sources of borrowing to make ends

Indian households rely on informal sources – principally the money-lender – to
make ends meet. Almost 40% of rural Indian households and a fourth of urban
Indian households borrow from the money-lender to meet expenditures towards
health and medical treatment. Nearly a fourth of rural Indian households
leverage this source to meet routine household expenditure. In urban areas too,
this proportion is significant – at nearly a third.

Financial institutions overall is the major source of borrowing but borrowing
from financial institutions is mainly for planned expenditure such as purchase of
machinery and consumer durables.

c) Households with labour as the occupation of the chief earner tend to be

more at financial risk
In rural India a fairly high percentage of the financially at risk are also self-
employed in agriculture. Note, however, that the bulk of better-off rural
households also derive their income from self-employment in agriculture.
Households that derive their income from regular salaries and wages tend to be
less financially at risk. They tend to have a lower level of outstanding loans.
Typically, the main breadwinners in these households are the ones who are more

V. Using life insurance as a financial protection and long-term wealth

creation tool

The Paradox of Perception: Despite being financially at risk, Indians are

confident about their current and future financial security
An overwhelming 54% are fairly confident about their financial well-being.
Another 13% feel “most confident”. Only about 15% of households are totally
uncertain about their major source of income.

The reason behind this ‘misplaced optimism’ over financial security can probably
be attributed to safety nets like the joint family system. However, the findings of
the survey are alarming because 36% of the respondents had no idea about how
they will find an equivalent in case of loss of the major household income source.

This paradox of perception largely cuts across the various income groups.
Although (and expectedly so), a larger percentage of households in the lower
three income groups in rural India said they are less confident or least confident
of their future, an unexpectedly sizeable proportion expresses confidence about
their future (especially those in the second and third income groups).

Financially at risk urban Indians appear to be even more optimistic than their
rural counterparts. A higher proportion of households in the bottom two income
groups in urban India are confident of their future.

96% of households feel that they cannot survive for more than one year on
their current savings in case of loss of major source of household income

Life insurance and Indian households

Two key findings of the Max New York Life - NCAER India Financial Protection
Survey firmly suggest that there is a strong potential demand for a robust
instrument offering financial protection and planning. First, most Indian
households are financially at risk. Second, most Indian households are more or
less confident of the stability of their future income. Both these pointers suggest
that Indian households are in need for instruments such as life insurance that
offer financial protection and allow long term wealth creation in order to
mitigate risk to loss of life or disability and to plan the investment for major
milestones in life.

An affluent, educated urban preserve

Life insurance ownership is largely a function of affluence and education. This
can be elucidated by the following findings:
i. Middle and high-income states have a higher percentage of life insurance
owners (about 57% of top 10% of income earners own life insurance).
ii. A higher percentage of graduates tend to own life insurance (about one-
third of life insurance ownership is amongst households where the chief
wage earner is at least a graduate, if not more educated).
iii. Households that draw their income from salaries and wages, tend to own
insurance (40% of life insurance ownership is amongst salaried
households). This group tends to have the highest per capita income.
iv. Households with large land-holdings own life insurance as compared to
other land-owning families.
v. Households owning life insurance also tend to demonstrate a high level of
ownership of consumer durables.

Awareness is high, but ownership is low

Life insurance in India faces a unique paradox. Awareness of life insurance
stands at a high 78% on an all-India level, with more urban households ((90%)
aware of it than rural households (73%). Yet, only 24% of Indian households
actually own life insurance policies – the bulk in urban India. Only 19% of
households in rural India own life insurance. About 4% of Indian households
bought policies in the last year -- 6% in urban households and 3% in rural

Opportunities at the bottom of the pyramid
Remarkably, 44% of households that earn their income from labour – which are
also among India’s most financially at risk – invest in insurance. This is almost at
a par with households that are well-off – that is, those that earn their income
from regular wages and salaries (43%).

The point to note, however, is that case sizes for this section of the population are
typically small. Labour households invest just Rs 748 annually in insurance,
compared with Rs 6,000 for those that earn regular salaries and wages. But
labour households constitute one of the larger sections of the total number of
households – a little over a third – suggesting that the potential for generating
volumes here is large.

Taken together with a key finding in the survey that more than a third of Indian
households simply prefer to keep their money at home, it is clear that there is ample scope
for life insurance as an instrument for financial protection.

A premium on optimism
The ‘opportunities at the bottom of the pyramid’ get reinforced by the fact that
insurance ownership appears to have a correlation with optimistic perceptions
about future income stability. In rural India, 36% of those who are most
confident own life insurance; in urban India the percentage is 56%.

Also worth noting is the fact that nearly 25% of urban households who own life
insurance say they are less confident – almost double the proportion of rural life-
insurance owing households with the same outlook. There is also potential
amongst well-off rural and urban households who are confident of the future but
do not own an insurance policy.


The financial risk, the spending and borrowing habits of Indian households, their
perceptions about financial security and low ownership of life insurance all point to
significant opportunities ahead for the industry:

1) Improve financial literacy and understanding of the true value of Life Insurance:
These opportunities emanate from the fact that while a vast majority of Indians are
aware of life insurance, only 24% of households own a life cover.
a. Help understand the financial risks of ‘living too long or dying early’: Most
Indians have a misplaced optimism and tend to believe that ‘nothing will
happen to them’ and that ‘savings will take care of things’ in case something
was to happen.
b. Spread awareness about financial planning: As personal incomes and
aspirations continue to grow coupled with rapid changes and uncertainties,
there is a strong need for financial planning.
c. Life Insurance is a protection tool: In India, insurance is largely used as a tax
and saving tool, rather than for protection. There is need to reorient the
consumer about the benefits of life insurance for both financial protection
and long-term wealth creation.

2) Provide life insurance solutions relevant to different customer segments:

a. Rural India: Increase Life Insurance ownership through enhanced reach with
relevant mix of products
b. Urban India: Improve adequacy of life insurance coverage focusing on both
short and long term needs.
c. Women in India: there are just 14% female life insurance owners compared
to 86% being men. This segment is truly enormous which we need to better
understand and provide life insurance offerings to help them become
financially secure.

Max New York Life will continue to help customers plan for their financial needs and
security by providing them sound quality advice to select the right kind of life insurance
cover for them and their family.


In June 2005, Max New York Life, one of India’s leading life insurance
companies, approached reputed research organisation, the National Council of
Applied Economic Research (NCAER), with a unique proposal. The brief was to
develop an all-India household survey to determine the financial security and
well-being of Indian households and to generate a risk profile of Indians across
socio-economic groups.

Given the absence of a robust, state-supported social security programme in

India, one of the objectives of the study was to understand the significance and
potential of life insurance in particular as a risk-mitigating tool for Indian

Survey procedures such as approach, concepts and definitions, sample design

and sample size, contents of the questionnaire etc were finalised and executed
after reviewing the experience of 36 countries (such as the Expert Group on
Household Income Statistics, The Canberra Group; Household Income and
Expenditure Statistics, ILO; Chinese Household Income Project, 1995; Household
Income and Expenditure Survey, Sri Lanka 2001-02) and major national sources
(such as relevant rounds of NSS and in-house experiences of NCAER surveys).

Both quantitative (Sample Survey) and qualitative (PRA/RRA) techniques were

employed to generate the primary data.

A multi-stage, stratified sampling method was adopted to generate

representative samples. Sample districts, villages and households form the first,
second and third stages, respectively, for selection of the rural sample while
cities/towns, urban blocks and households are the three stages of selection for
the urban sample.

Sample size and its distribution were determined on the basis of the accuracy
required and the resources available. A sample comprising of 63,016 households,
out of a preliminary listed sample of 440,000 households, spread over 1976
villages (250 districts) and 2,255 urban wards (342 towns) covering 64 NSS region
in 24 states/UTs was interviewed while executing the survey.

To increase accuracy and ensure adequate item response, the survey was
conducted by holding face-to-face interviews of heads of households as well as

members of households, with the help of a questionnaire. Non-response was
reduced by conducting focussed group discussions, proper training of
interviewers and supervision.

Detailed information was collected on the demographic profile of the

households, household composition, components of household income,
consumption expenditure and on relevant qualitative indicators relating to
economic activities of households. An exclusive module containing aspects such
as motivation to save, reasons for saving, preferred mode of saving, investment,
borrowing, household economic shocks, insurance, perception about well-being
etc, were canvassed to all sample households to measure the level of financial
risk of Indian households.

The Max New York Life - NCAER India Financial Protection Survey was
designed in consultation with an advisory board. A special Thank you to Suman
K. Bery, Director General of NCAER; Economist Subhasis Gangopadhyay; S.L.
Rao, former NCAER chief and power sector regulator; D.V.S Sastry from IRDA
and Dr. Shukla, Senior Fellow, NCAER for their invaluable insights and advice
in designing this survey.

Media Contacts:
Genesis Burson-Marsteller
Suvir Paul / Archana Mohan
Mobile: +919811572137/ +919899736857
Email: Suvir.paul@bm.com / Archana.mohan@bm.com
Fax: + 91 124 404-4744