Why Insurance has low penetration in India?

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India has only 4% population which has bought insurance for themselves and we are way below the international average. It is evident from the latest figures which have emerged from recent wave of Covid19 by the number of deaths reported and the number of claims registered with life insurance companies. TERM PLAN is something one has started relating to insurance as it has gained popularity with the masses, especially in Metro Cities. It’s an important aspect of financial planning which is well begin but loses stem in between and the entire pillar of financial planning gets weak. The reason for low penetration and low persistency of Insurance in our country are as follows:


An Insurance Product Bought Without Understanding:

This is a common aspect where people do not continue with their policy as they realize midway that the product was sold without understanding the terms and features of the Policy. This typically happens with ULIP plans where there is an exit option after 3-5 years (as per new IRDAI rules exit option can’t be exercised before 5 years). Agents sell them as a short-term product where the policyholder gets disappointed with the returns at the end of lock in period due to high allocation charges. Intermediaries should explain the long term benefits of the scheme which can give them better returns with insurance cover.

Intermediaries do want to push Term Plans:

Agents and other intermediaries have not been promoting Term Plans which are reasonable with the cost and Sum Assured. This means the premium charged by Insurance Company is low and the Sum Assured offered is high. The product is popular with the section of the population who has responsibilities of families by their side and it’s relatively younger people. The premium is low and remuneration is also low thus it is not attractive for them to promote. Secondly, the persistency of Term Plans is low as any financial crisis in the family premium for the term plan is ignored and the plan seizes which denies intermediaries their renewal commissions.

Avoidance to a long term contract:

Indians do not like to plan for the long term and don’t like to bind themselves with a long-term contract. It is unfortunate that even youngsters who have a life before them do not like to bind themselves with any long-term financial commitment. Covid19 has shown that when a crisis knocks on your door it doesn’t see age but its learned hard way. A financial plan which is designed for your life includes long term planning and it’s ironic that one doesn’t like to bind oneself for long term payment contract which can be useful for the family in case of an eventuality.

Life insurance should be evaluated not as an investment tool but it should be considered as a protection tool for the family to manage cash flow against eventuality. One who doesn’t have constrained of budget can go for Term Plan as mentioned above it’s a cheap solution to a high Sum Assured. Thus two aspects are important- buying the best suited policy and when you make it part of your financial plan continuity till maturity is equally vital. And both these aspects can’t be managed without the handholding of the right intermediary.