Insurance is Not as an Expense, But a Necessity

Rakesh Goyal, Director, Probus Insurance Holding a Post Graduate Diploma in Business Administration & Management from Jagan Institute of Management Studies, Rakes held the role of Senior VP at Bonaza, prior to joining Probus in 2015.

There are a huge proportion of Indian investors who invest in financial products with an aim to get some kind of‘returns’, which is ideally not bad. Aspiring to get profitable returns if you are investing your hard-earned money is justified however, the problem arises when one thinks insurance as an expense rather than a need.

In the past few years, considering the population of the country the insurance penetration levels in both life and non-life industry clearly illustrates that policyholders are under insured or not insured at all. As per the budget released for the year 2020, it was stated that the insurance penetration of non-life insurance in India is even less than three percent of the entire GDP which is way too far. At the same time, 56 percent of the Indians are not even covered with any type of health insurance which is indeed a significantly low value to tackle the health risks. Such a small percentage of insurance penetration shows the utmost need for some serious awareness of the insurance among the people in the country. On the other hand with the increasing digitization over the past few years, it is seen that people are more inclined towards buying insurance for their expensive gadgets, but they treat insuring their life as an expense when it comes to buying life, health or other general insurance products.

Typically financial planning should begin with insurance however it is the other way round in India. Here most people only invest in insurance for tax saving purpose while ignoring the other perks associated with distinct plans. There would be no significant progress in the penetration of insurance unless there is a proper understanding of insurance among individuals. Insurance as a financial product can have a major boost to one's finances as they have an option to invest in a term plan, endowment plan money back plans and Unit Linked Insurance Plans(ULIPs) according to their risk profile. Proper investment into the insurance products as per the need and budget will result in great benefits to both the insured as well as the insured’s family.
Also there should be a major focus towards investing in the life insurance products by the policy seekers as these products come in as a perfect fit for an individual’s needs of security and savings. Life insurance products are designed as an asset allocation strategy based on the risk taking capability of the policy holders, can act as an effective method of deepening their long term wealth. Long-term investing is all about investing for a longer duration and let money get compounded over the period of time. But several of the insurance serves twin purpose as they provide compound interest like fixed deposits in a bank and are more tax-efficient than mutual funds. These benefits are not only cost-effective but also ensure peace of mind during unpredictable or catastrophic situations.

With a prevalent increase in the number of lifestyle diseases accompanied by rising medical inflation health insurance has become the need of the hour for Indians

Not only life insurance but even if we talk about health insurance, the picture is not that great. With awareness, we are witnessing a trend where people are coming and buying health insurance policies. With a prevalent increase in the number of lifestyle diseases accompanied by rising medical inflation health insurance has become the need of the hour for Indians. As it is said, ‘Prevention is better than cure’it is highly important that people understand the magnitude of the need of the health insurance and be stress free from the huge medical expenses that might dig a hole in your pocket in case of medical emergencies.

Even the government had announced the launch of National Health Protection Scheme(NHPS). NHPS will provide a health insurance cover of up to Rs. 5 lakhs per family to over 10 crore underprivileged and vulnerable families. Also, the new budget of 2020 has highlighted the initiative taken by the insurers who are looking for GST waiver for insurance products so as to make it easier for the people who are looking for buying a policy or who might think of opting for a plan in the future. This step will surely motivate individuals to take the insurance cover as per their needs and suitability.

But India has still one of the lowest per capital healthcare expenditures in the world. Government contribution to insurance stands at roughly 30-35 percent, which is low compared to the global average. Even now, there is a high out-of-pocket expense in India and huge portions of the Indian population do not have health insurance.

So it's not only the responsibility for investors to go and buy the policy but also of insurers and regulators. They should make sure that products are simple to understand and should attract a large number of people. In accordance to this there have been several key announcements in the latest budget in the favour of the general public and there are many other major developments that are expected which will attract more individuals towards investing into the insurance products. In addition to this, there are many other types of insurance available in India they can cover the risk of policy holders. For example like travel insurance, which also comes cheap.

With the government and the insurance industry taking steps towards the encouragement of new investors in the industry it is equally significant that Indian investors need to change their mindset as well and try to understand that insurance is a necessity and not an expense and is a must for the financial well-being.