What is insurance? As per the definition stated in ( INVESTOPEDIA, 2012 ) Insurance is a contract ( Policy ) in which an person or entity receives fiscal or reimbursement against losingss from an insurance company. The Company pools clients hazard to do payments more low-cost for the insured.

The narrative behind the insurance is likely every bit old as the narrative of world. The grounds found that method of insurance were being practiced by the Chinese and the Babylonian bargainers by reassigning hazard as long ago as the 2nd and 3rd millenary BC.

This industry has been evolved from 1000s of old ages and soon it plays critical function among the figure of industries operate in the economic systems of every state, Chiefly the insurance industry plays prevailing function in the fiscal market and capital markets which straight parts to hike economic development. Insurance industry impact on every economic system across the Earth is became a important factor. In similar, Insurance industry in Sri Lanka is one of turning fiscal intermediary which extremely volatile with macro economic conditions.

In Sri Lanka insurance concern has been enacted under the control of insurance act no 25 in 1962 and later several amendments were followed.Currently, insurance industry is regulated and supervised in footings of the commissariats of the ordinances of insurance industry act no 43 of 2000.

Publication on insurance by Insurance Board of Sri Lanka ( IBSL, 2011 ) stated that Insurance and its related merchandises are being marketed in Sri Lankan context quickly when comparing the last three old ages. There are two chief sectors could be indentified in the insurance market those are life ( long term insurance ) and general insurance. During 2010 aggregative gross written insurance premium ( GWP ) reported from long term and general insurance concern entering a important addition of 19.63 % comparison to twelvemonth 2009.Out of that growing of the long term GWP is more important around 31.07 % comparison to twelvemonth 2009.The growing in GWP for both long term and general insurance is

chiefly driven by the concern confident after the war, new markets in north and east and GDP growing of Sri Lanka in twelvemonth 2010.How of all time, growing impulse is reflected in the industry there are many issues in insurance industry which are interested and researchable subjects for analysing.How of all time in this survey, consideration will be limited to the factors influence on demand in life insurance industry and chief factor will be degree of consciousness, and in add-on to that two chiefly identified demographic factors viz. income degree and instruction degree and its impacts will be researched. In life insurances there are figure classs can be indentified such as decease insurances, pension programs, Investment plans with future returns at adulthood.But in current scenario most of insurances companies have made seamster made merchandises by uniting besides those properties into a one individual policy which give multiple benefits.

1.2 Objective of the research

One of the major critical challenge prevails in the current society is pull offing and commanding economic and life hazard which could paralyse and destroy whole lives of the families. In order to extenuate and pull off economic and life hazard, people use figure of insurance merchandises and its deliverables.

Life insurance plays a major function in persons, households fiscal lives since it unafraid loss of income after the decease of primary income earner. In 1965 Yaris proposed the usage of life insurance to see against life clip uncertainness ensuing for the mortality hazard of persons Since, most research expect that life anticipation to hold negative on the demand for life insurance, since the longer life anticipation associated with less chance of prematureness decease and lower demand of life insurance. Further some research findings shown that consequence of life anticipation on life insurance demand is equivocal.

As per the statistics available in decease rate of the Sri Lanka, it reveals that though the mortality hazard has been decreased the important growing shown in the insurance incursion in the current market content, Thus original proposal of Yarri is being challenged and deviated to different way. Further, as an case for the said fact that in 1960 decease rate in Sri Lanka is 9.06 % out of 1000 individuals and it has came down

to 5.83 % in twelvemonth 2005. ( NationMaster, 2012 ) every bit same as male big decease rate is 29.62 per 1000 male grownup in 2005 and it was prevailed higher as 214 per 1000 male grownup in 1970.

As per the above grounds petroleum decease has continued to worsen since 1970 in Sri Lanka but a significant addition in hospitalization was observed for hurt and toxic condition during the period from 1980 to 2000 and decease causes from ischaemic bosom diseases and diseases of liver show a steady addition. ( Prof.D.Lakshman, 2012 ) Therefore, the prevailing hazard on premature decease of individuals should non be underestimated within in Sri Lanka.

Premature decease of exclusive income proprietor of caput of household brings serious fiscal effects for the dependants since their beginning of income is stopped everlastingly and no alternate to run into their fiscal duties and dependants other demands such as refunding loans, kids instruction, medical disbursals ect. As describe and detailed by the German ( 2006 ) The life insurance allows persons and households to portion the hazard with many others and to divert from fiscal loss from the decease of chief income proprietor.

As detailed above one major facet of the survey is to mensurate grade of consciousness on possible life and economic hazard and insurance merchandises deliverables which incorporate to managed negative demand and positive demand of life insurance ingestion.

In add-on to the above chief factors of consciousness of life and economic hazard there are figure societal, psychological, economical and demographic factors can be identified which are affected upon being insured or consumer is being satisfied that his / her hazard conditions should be secured by the insurance merchandise deliverables or why should I acquire insurable, those are identified in the several research paperss as household size and birth order discrepancy, Income degree, Education, Marriage, medical demands, employer demand, bearer phase and ends, household depend on one income earner, love to the household, low leaning to devour, non needfully, scope of affordability or non handiness of appropriate insurance merchandises and services which resultant for insurance low or high incursion.

However, this research survey is undertaken merely to analyse the association of demographic factors such as instruction degree ( Demographic ) and income degree ( Economic Indicator ) of the consumers with the awareness life and economic hazard and insurance merchandise and analyze how those variables are impact on insurance ingestion demand. The survey will be conducted utilizing study methods and questionnaires will be prepared for roll uping the information and self disposal method will be used. 120 respondents from Matara country was selected as population descriptive and illative statistical methods was used to analyse the information in order to place behaviours of said two demographic factors and impact on being insured through consciousness on life and economic hazard

1.3 Research Problem

As describe above the life insurance demand increased quickly during last few decennaries chiefly as fiscal services suppliers to the consumers and to the capital markets. However, growing is non important in the same degree in the development, developed and industrial states. The big disparity on insurance demand across the states makes the inquiry the grounds behind the same and what are the determiners on life insurance demand.

As per the IBSL ( 2011 ) information which describe above, the life insurance industry is blooming on the Sri Lanka fiscal industry. There are 42 insurance brokering companies operates in Sri Lanka and out of that 34 companies are involved in life insurance concern. However in Sri Lankan context uncertainness and deficiency of trust on insurance merchandises and its deliverables are important hindrance factor which constrain life insurance incursion.

Further, research workers have observed the negative consumer perceptual experience has inhabited in every sector of the economic system irrespective of the demographic differences. The consumer perceptual experience on insurance merchandises and deficiency of consciousness on possible hazard and capablenesss of insurance deliverables has been assisted to make said scenario within the industry in Sri Lanka ( Saheed, 2011a ) . This is non limited to the Asiatic markets, this is signifies in the European and American context every bit good but non reflect as extremely important issue.

As per the statement issued by the Mr. Ramal Jayasinghe president of the Insurance Association of Sri Lanka There is a batch of ignorance, misconstruing and misconceptions of insurance merchandises in Sri Lanka ( Saheed, 2011a )

As per the intelligence article published by the same writer said that ( Saheed, 2011b ) The low insurance incursion of 10.4 % in Sri Lanka is due the deficiency of consciousness and hapless economic conditions. Most of life insurance policies laps along the manner due to insured individual finds hard to go on to pay premiums because of monetary jobs.

Harmonizing to the figure life insurance researches done in the Indonesia by research workers and universities, they are revealed that degree of insurance incursion is low and holding large market chances. Besides in findings they highlighted that Indonesia in general has non reached life insurance consciousness and cultural consciousness mindedness strong. ( Gunawan, 2003 )

( Anderson, 1975 ) conducted a research on variables associated with the sum and type of life insurance purchased which was based on socioeconomics, demographics and other variables are examined by the agencies of multiple categorization analysis. The respondents are sample of freshly married twosomes and out of the many consequence findings more important fact of the research is that sum of life insurance purchased ( which is the 1 dependable variable out of three considered variables ) is significantly explained by the six independent variables such as instruction, current house hold income, expected house hold income, net-worth of house clasp, Husband insurance before matrimony or married woman insurance before matrimony

Base on the available empirical grounds and theories, I investigate the 3 determiners of demand for life insurance in Sri Lankan insurance market. The three independent variables are indentified such as Awareness ( Social index ) House hold Income degree ( Economic index ) and Consumer Education ( Demographic index ) .

The paper is organized as follows, chapter I- Introduction, describe research epistasis and theories. Chapter-II- Showing the specific literature of the old surveies. Chapter III- describe informations and Methodology. Chapter IV- Data analysis, Summary and decision.


This chapter will be discussed of the theoretical background for identified variables which influence on demand for household demand for life insurance policy

Demand for life insurance -demand define as an economic principal that describe a consumers desire and willingness to pay a monetary value for a specific goods or service ( INVESTOPEDIA, 2012 ) .

Hazard Awareness- The consciousness is the province or ability to comprehend, to experience or to be witting of events, objects or centripetal forms.

In this survey see the grade of consciousness on life and economic hazard and consciousness on hazard extenuating capablenesss of the life insurance merchandises and its deliverables. Harmonizing to the several past research findings as stated above, it shows that there is a important and positive relationship among consciousness and ingestion demand for life insurance.

House hold Income degree – It describe the all gross income of families who are more than 18 old ages and individual house hold income will non be considered as house hold income. Further, the household chief income should be generated rewards and wages ( earned income ) The degree of income of the house clasp is the prominent variable which influence on demand for life insurance and it describe in several past research findings and journal articles published.Hence the undermentioned hypothesis is being developed. Finally as income additions, life insurance purchases become more low-cost.

Education degree – As describe above in old surveies, it is found that the vitamin E relationship is existed between instruction degree and demand for life insurance. Education degree is being measured by the grade, higher surveies level and sort of schooling. Education is an index of human capital within the families which associated with the life insurance demand. Peoples with higher instruction degree expect more income growing and they have better consciousness of life hazard and unsteadily of life. Due to the both facts they think necessity of life insurance policies.

In ( Yaari, 1965 ) was the foremost developed the theoretical faculty for analyzing the demand for life insurance. The life-cycle public-service corporation faculty was developed by him with sing the optimum ingestion and nest eggs program for a consumer. The consumer maximizes life clip public-service corporation topic to a flexibleness of existent involvement rates and monetary values of the constabularies and the faculty suggested that demand for life insurance to be a map of wealth, expected income over persons life clip, the degree of involvement rate, the cost of the life insurance policies and price reduction rates offered presently which affects in future. In 1989 Lewis used the frame work of the faculty developed by Yarri for his surveies and he included the penchant of the other members of the families. The old surveies was based on maximising the life clip public-service corporation of the person who purchases the life insurance policy. ( Primary pay earner ) . The Lewis ‘s suggested that life insurance to be purchased to fulfill the demands of subsisters. Further, his faculty is non depended on the primary pay earners holding a bequest motivation. ( Lewis, 1989 )

Lewis shows that entire life insurance demand can be written as follows.

( 1-1p ) F=max { [ 1-1/p ] 1/8 TC-W, }

1 ( 1-P )

Where 1 is the policy lading factor – the ratio of the costs of the insurance to its actuarial value – , p the chance of the primary pay earner ‘s decease, F the face value of all life insurance written on the primary pay earner ‘s life, 8 a step of the donees ‘ comparative hazard antipathy, TC the present value of ingestion of each offspring until he/she leaves the family and of the partner over his/her predicted staying life span ands W the family ‘s net wealth.

Milton Friedman was developed the lasting income hypothesis faculty and it describe that the ingestion form of the consumers non determined by the current income and but their long run income outlooks. In other words, it says that people makes ingestion and nest eggs determinations base on their long-term outlooks or future flows of income. Harmonizing to the lasting income hypothesis the income form of the consumers changing over the life clip and at the retirement age income expected to be lower. Hence, people demands to borrow from future and salvage the money ready for the retirement. In the faculty lasting income consist of value on non human assets every bit good as human capital returns in the from of future income as a consequence of instruction and experiences. The consumers are believed to do an estimation expected lifetime income base on said assets and to annuitize this present value over their life clip. The present value of pay earners human capital can be replaced by the insurance merchandise which provides ball amount to the donees and stand for the present value of the human capital of the primary pay earners at their prematureness decease. Since, it is describe that the human capital of the person, such as their instruction and employment position would act upon the life insurance demand. ( Friedman, 1957 )

Ando and Modigliani ( 1963 ) developed a life-cycle hypothesis which is described the relationship between current income and hereafter expected income of the consumers over their life clip. Similar to the lasting income hypothesis, the life rhythm hypothesis is based on the economy and ingestion determination of the consumers are driven by the present and future income. The life rhythm hypothesis describe that an single income depression at the beginning and end phase of the life and high during the in-between phase. Therefore, immature families with lover income may be given to purchase lower cost term life insurance and older families assume that they may hold lower hazard since they have already accumulated a certain sum of wealth and less demand for life insurance. ( Ando, 1963 )

Expected public-service corporation theory ( ETU ) is a theory of determination doing under hazard which is described by the Johan Von Neumann and Oskar Morgenstern. It stated that consumers make determinations based on two factors such as public-service corporation of the result and their several chance. Under ETU consumer chooses actions or schemes that maximize expected public-service corporation and public-service corporations besides determined under the penchant of the consumers. Since they have different penchant degrees against different hazard degrees, which is ensuing in different determination on whether to purchase life insurance, every bit good as the sum of life insurance needed. The more risk-averse family is willing to purchase more life insurances or purchase more life insurances to extenuate the hazard of prematureness decease of the primary pay earners in the family. ( Levin, 2006 )

As describe above the Yarri ( 1965 ) stated that an single additions expected public-service corporation by buying life insurance, Lewis ( 1989 ) describe that the life insurance is being selected for maximising the expected life-time public-service corporations of the subsisters. But before family devising determination to increase their expected life clip public-service corporation, they have to believe about and aware on what type and how much of life insurance they need.

As per the faculty of the Anderson and Nevin ( 1975 ) stated that the life insurance buying behaviour includes three parts such as Premium outgo ( the useful and equal cost information is a critical component to intelligent determination devising ) , sum of life insurance purchased ( should place the existent fiscal demands after the primary income earners dies and choose the appropriate sum and value of the insurance ) , Type of life insurance purchased. ( whether the household need merely the term insurance or hard currency value insurance or merchandise with multiple benefits ) ( Anderson, 1975 )

Today, life insurance merchandises are more abundant and complicated than in the yesteryear, the demand of recognizing the characteristics, benefits and restrictions of the merchandise is pre-requisite for buying an right type of life insurance for persons or to the families.

In position of the above detailed theoretical accounts and supported with other literature support, we have developed the under reference hypothesis.

H1 There is a positive and statistically important relationship is existed with consciousness of life and economic hazard and life insurance demand.

H2 There is a positive and statistically important relationship between income degree and demand for life insurance.

H3 There is positive and statistically important relationship between instruction degrees and demand for life insurance.

In order to examined and explore those identified variables in the proposed conceptual frame works, I refer to the relevant literature reviews to contract down the research job and operationalize the same. Three chief constructs have been identified and defined as above in the survey and the consequence on the dependant variable ( Demand for life insurance ) will be measured upon the influence on 3 identified independent variables such as consciousness on life and economic hazard, income degree and instruction degree.


How does awareness on life and economic hazard influence on negative or positive ingestion demand for life insurance?

What does the deciding factors influence on life insurance demand?

How make the demographic factors such as income degree and instruction degree respond on positive or negative life insurance demand?