Insurance: Why Indians Consider It Is Not Necessary?

Fund-Matters | August 7, 2021 | Financial awareness, Financial Literacy, Insurance, Insurance In India, Insurance Myths, Insurance Planning, | 0 Comments

Insurance is just an investment product for most Indians. According to a survey conducted by *PGIM Mutual Fund, Indians mainly invest in life insurance and FD’s for retirement. In the survey, 41% of people said they focused their retirement investment on life insurance, while 37% preferred term deposits. (PGIM India Mutual Fund conducted the ‘Retirement Readiness Survey 2020’).

Despite knowing that the basic purpose of taking out insurance is protection against risk, Indians rarely understand or completely ignore it. The basic principle of personal finance says, not to mix insurance with investment, but in India, investment-linked insurance products are still the preferred option for retirement goals. In 2017, *LexisNexis Risk Solutions India surveyed nearly 2,000 customers in metro cities and tier 1 cities. They did this survey because they wanted to understand the mindset of the customer and what information they were looking for to make an insurance purchase decision.

Research from LexisNexis shows that there are a large number of people who think:

They do not need insurance
Insurance is not related to their life
They don’t understand what insurance is

Research has also found that many people do not consider life or health insurance necessary.

What are the role of Indians and their mindset?

Most people in India expect returns wherever they put money. One can see the questions or queries about personal finance on Quora, social media investing platforms, Facebook financial groups. ‘The best investment to make more profit?’ ‘Best Investment option to create wealth ?? these types of questions are overwhelming. People want to make money or profit in the short run. Very few people want to learn about personal finance, stock markets, mutual funds, etc. Insurance is also the most neglected topic. Most people in India buy insurance as an investment or for tax savings.

Role of insurance companies

Instead of raising awareness about the ‘importance of insurance, insurance company’s, emphasis is on selling insurance products like ULIPs, endowment policies.

The bank is the ‘heart’ of India’s economy. People from rural India to urban India are connected due to bank branches and their vast reach. People always trust bank/bank staff for their money and consider that their money is safe with them. That is why insurance companies have chosen banks as their main option to reach out to as many people in India. After banks, agents, and employees of insurance companies are other ways to reach customers. Banks, agents, and brokers are the main sources or contacts for getting insurance and related information.

Insurance companies in India sell more savings-linked products than pure insurance. Why? because they have captured the fact that ordinary Indian people/investors expect a ‘return/profit’ from their money.

As you may have heard often or noticed, when we go to the bank for any transaction/inquiry, a bank RM or employee tries to tell you about an insurance policy along with the investment. They show you how any such policy can be profitable in a few years and give you a good return on your investment. Many times they urge you to start investing without checking the details and facts and people invest in the temptation of ‘profit’ or just to maintain a good relationship with the bank. This is how it works for an insurance company.

On the other side, the growth rate of the insurance industry in India is significant and it expected to grow further. Shares of many private insurers appear to be performing well in the stock market. Their business is also growing. As compared to the Indian population, a very small percentage are actually understood and covered with required insurance types, there lies a huge opportunity for expansion.

Based on the findings and calculations so far, life insurance companies mainly sell savings-related products. This shows that only 10 to 20 percent of the Indian life insurance business is pure insurance; The rest of the business is about investment/savings linked insurance products.

The current epidemic of the corona has made Indians aware of the importance of having health insurance and term insurance. There is a need to increase financial awareness/literacy about insurance and its importance in everyone’s life. When people realize that insurance is not something that can only be purchased when the need arises, they will take it seriously. One needs insurance to protect them and their family’s future.

Also, the insurance industry should examine their ways of reaching out to customers and if they are truly serving the insurance purpose and to customer needs, in an ethical manner.

Stay Safe.

*References/sources of website / article / survey links (for more information): –

Disclaimer:The views and opinions expressed are those of the authors. Any content provided by our bloggers or authors are of their opinion and are not intended to malign any organization, company, individual or anyone or anything.