Till date, Indians are not aware of the importance of life insurance products. The country has enormous untapped potential for life insurance products and both the domestic and international life insurance companies are very well aware of this market. Still, 80% of the total life insurance market is covered by LIC whereas private insurers have the rest 20%.

Today's Indian life insurance market is witnessing the entry of a number of foreign players. Competition is also getting stiffer day by day. In such a situation, the obvious way for survival is either to tap the huge untapped potential in the market or to appropriate valuation or pricing of products by cutting costs. The terrific advancement in technology and speed in communication has taken care of the expansion part of the activity for any player. Therefore, today, reaching each and every corner is not a factor, the crux has shifted towards competitive valuation or pricing of life insurance products and appropriate cost cutting. The pricing of life insurance products is a very sensitive issue in the insurance market. Low prices will attract more shares in the market; high prices will cut down the business. With this approach, a company should fix up the price of life insurance products (i.e., premium of policy) in such a way that it can survive in the competitive market for a long period.

Premium is the main source of income for the life insurance companies. It is payable by the insured to insurers in a number of installments during the term period. The premium is mainly calculated on the basis of the amount specified in the mortality table. Life insurance is the financial protection to beneficiaries due to loss of life. If this loss occurs in the early part of the term period, the risk of insurer is very high as it has to pay policy value of the product without recovering remaining number of premiums during the term period. Though the percentage of occurrence of this loss is very small, risk of payment of large amounts is there.

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