As a large part of India’s population navigates its journey towards greater financial security, the significance of life insurance is becoming increasingly apparent. With insurance penetration steadily rising from 2.2% in 2002 to 3% in 2023, there is a growing recognition of life insurance as a vital financial safety net for families across the nation. Yet, despite this trend, a substantial segment of the population remains uninsured or underinsured. This gap highlights persistent challenges, including a limited understanding of insurance products, the misconception that such products are only necessary in times of crisis, and a prevailing consumer preference for more profit-oriented investment avenues. In this article, we delve deeper into more such factors that are influencing the perception of life insurance amongst Indians.
Understanding demographic influences on insurance decisions
In India, demographic factors play a crucial role in shaping awareness and purchasing decisions regarding life insurance. As per our recent consumer awareness survey, we found that 55% of Indians between 20 to 50 years of ages (across Tier 1 and Tier 2 cities) began contemplating term insurance in their 20s, yet many expressed regret for not acting on this aspect. Younger individuals, often focused on immediate gratification, tend to overlook long-term financial planning, including insurance. Conversely, middle-aged individuals—who typically shoulder significant financial responsibilities like supporting families and owning homes—are more inclined to seek insurance coverage. Unfortunately, by this stage, they may face challenges such as increased premium costs and potential eligibility issues related to health conditions, lifestyle choices (such as smoking and drinking), delayed medical disclosures, or insufficient income documentation. It is crucial, therefore, for individuals to start subscribing to insurance solutions early-on in life when health issues are minimal. Early consideration not only allows for better premium rates but also ensures individuals are adequately insured when they need it most.
The Awareness-Action Gap
A strong grasp of financial concepts enables individuals to accurately assess their insurance requirements. However, currently, a significant disconnect persists between recognizing the importance of insurance and taking action to secure it. While 83% of Indians acknowledge the necessity of term insurance, only 11% review their policies annually. This disparity reflects broader challenges in converting awareness into actionable steps, a situation which later extends to retirement, wherein, 66% of Indians initiate retirement planning at 30 years of age but 74% of these wished they had begun planning earlier.
Addressing this awareness-action gap necessitates a focused effort on financial education programs by the large ecosystem of insurance players as well as other key stakeholders such as the regulators, distribution partners, Fintech/Insuretech firms etc. By enabling financial literacy, individuals can make more informed decisions, ultimately leading to greater financial security.
Financial planning for independence
Indians today are increasingly savvy when it comes to managing money. We are well-informed and often seek high returns and gains through financial instruments such as stocks and mutual funds. While these options offer quick returns, there is a crucial need to understand the balance between risk and security, especially when planning for long-term financial independence. In this regard, life insurance products like Unit Linked Insurance Plans (ULIPs), Traditional Savings Plans and Retirement Plans, offer a balanced value. ULIPs combine insurance with investment, providing both potential returns and insurance coverage. Traditional Savings Plans can help with long-term goals, while Retirement Plans make for prudent, stable financial planning in the post-work phase of life.
Importance of pure protection Term Plans
Pure protection term plans are designed primarily for financial security rather than returns. They offer a high level of coverage at relatively low premiums if subscribed to early on, ensuring that the policyholders’ loved ones are protected financially in case of unforeseen events. While they do not offer the same kind of gratification as market-focused products, they provide a critical foundation to build a robust financial corpus. These plans focus on long-term security and peace of mind, which is essential in today’s unpredictable world.
Making life insurance a viable solution to the modern consumer
To broaden the appeal of life insurance, it is essential to prioritize education and transparency. By demystifying life insurance and clearly showcasing its benefits, customers can be helped to better understand its critical role in their financial planning. One effective approach is to integrate technology into the insurance process. User-friendly apps that simplify onboarding as well as policy management and provide accessible financial advice can significantly enhance engagement. These tools can demystify complex insurance jargon and help users navigate their options more confidently.
Moreover, aligning insurance products with contemporary values, such as sustainability and social impact, can further enhance their attractiveness. For instance, offering policies that support environmental initiatives or contribute to community development projects can resonate with individuals who prioritize ethical and responsible investing. By connecting life insurance to broader social and environmental goals, insurers can tap into the growing market of socially conscious consumers.
Also Read | Automated underwriting: The first step to improving life insurance coverage
Ultimately, it is crucial to realize that financial planning is not a sprint but a marathon. A balanced approach that combines short-term gains with long-term stability will set the stage for enduring financial independence. By taking measured steps and continuously educating themselves, individuals can build a robust financial foundation that supports their goals and adapts to their changing needs.
Views expressed by Akshay Dhand, Appointed Actuary, Canara HSBC Life Insurance
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