Life Insurance – the one product that we buy in the hope that we will never need to use it. Click To Tweet
Life Insurance has always made me queasy considering it comes into action only after you die. I have always thought that selling Life Insurance is a particularly tricky job.
HOW DOES LIFE INSURANCE WORK
In the event of death, a person needs an income substitution to continue providing for his/her loved ones. Simply put, Life Insurance shifts your risk of death to a larger group and covers for your risk which is why it is alternately referred to as a life cover.
Suppose there is a village called X with 1000 people living in it. The annual rate of death in the village is 0.1%. This implies that 1 person in the village dies every year. To simplify the example, suppose every villager will die with a liability of Rs. 50,000. Then all villagers will pay Rs. 50 as an annual premium to insure themselves. In the case of one of them dieing, that guy gets his liability covered.
Life Insurance is a modern version of the above example, which covers for a much higher number of people and more variation in their liability amounts.
LIFE INSURANCE IN INDIA
As an Indian, I guess I am not the only one uncomfortable with the product.India’s life insurance market is under-penetrated and inadequately penetrated – which implies that not only are fewer Indians buying life insurance but the buyers are also buying a smaller cover. Click To Tweet
While the life insurance penetration in India is growing as per a Financial Express report, as compared to the 6.2% global average, India’s current insurance penetration rate stands at 3.42%. With 17% population, the Indian insurance market still accounts for just 1.5% of the world’s total insurance premium. Isn’t that something that needs to change?
WHY DO WE NOT BUY LIFE INSURANCE?
So, what stops people from buying Life Insurance? On digging more into this question, some of the answers that came out were:
- Premium cost: The common belief is that Life insurance policies are costly. One reason for this is that as Indians traditionally most of us have bought ULIPs which are insurance+investment policies. However, pure term policies are not as expensive. You can always do a quick check on online aggregators today like Policy Bazaar.
- Complexity: Considering 24 IRDA-registered companies operating in India with gazillion type of schemes, it can definitely get overwhelming. This blog will try to simplify some of that and for any questions I am always happy to help (Just like the Vodafone Pug)
- Feeling of invincibility: A lot of us tend to think – hey, I am hale and hearty and work out frequently. Nothing is going to happen to me and then this premium money will be down the drain. I have just one reply to this – What if it does? What happens then?
- Discomfort: This is a reason I can empathise with. I hate the word and just talking about it makes me plain uncomfortable. But, if you want your loved ones to not suffer financially, apart from the inevitable emotional distress in the case of an unfortunate event, isn’t it better to talk about it rationally when there is still time?
I believe there is a need for awareness and also more of a conversation around Life Insurance. Starting today, I will post a 5-post series (including this one) for Life Insurance called #LIMondays. This will cover various topics like myths around life insurance, calculation of an adequate life cover, types of life insurance policies and questions to ask before buying a policy. If there is something you would want me to add on, please feel free to email me on firstname.lastname@example.org or write in the comments
Other posts in the #LIMonday Series: