Life Insurance – A Journey in Progress from a Fringe to Mainstream Product in Financial Portfolio

It’s April’2021.?A lovely Kashmiri family well-settled in Noida is blessed with all the requisites to form an ideal family. The family comprised an elderly couple staying with their son, his wife and two adorable granddaughters, aged 9 and 3. Son is doing well with a private company; a happy family can be conjured up through them.

In no time, the virus of covid-19 surreptitiously entered the son’s body and without getting in the notice of the external world through apparent symptoms, it entered all adult bodies present in the beautiful house. As things were destined, after some time the perceptible symptoms were diagnosed in the young couple causing home isolation, further deterioration in health, leading to a covid ward which culminated in ICU.

The bad news started with the son’s death, a father could not absorb this excruciating news and die on the same night. Being the only old lady at home with the two small kids and a dead body at home and another on the way from the hospital, she called up a relative from Bareily to do the cremation of the two bodies. Both bodies got cremated but as more ill fate stored, the kid's mother also passed away in the hospital and her body was also incinerated on the same day. Three bodies were cremated from the same family on the same day. The old lady also could not continue with this setback for long and succumbed after two days.

May’21, both the girls are taken along by their relatives to Bareily and covid has made them orphans. We wish their relatives take care of them the way their parents would have. What a poignant story!! It is one incident I know about; I am sure we all must have heard and experienced these incidences during Covid second wave.

Covid-19 is one of the black swan events which caught us completely off guard. Despite all technological and medical advancements, it has exposed our vulnerability. The impact is known to us & economies and individuals are still recuperating. It could be further debilitating if one more wave comes in.

Despite many menaces Covid brings in, one advantage it inherently brings is an abundance of Me Time due to work from home/anywhere as the new norm. This Me Time has helped us to explore our latent curiosity on a specific subject or passion. At times, our curiosity is related to what is going around us. As the world is treading on a digital platform, any business which can capitalise digital platform will thrive in the current environment. Financial business as such is largely seen as a face-to-face business that has transitioned well on the digital platform. Digitisation has accelerated the overall financial inclusion, it's evident in the number of DMAT, Mutual Fund, policies purchased online in the last year.

In the gamut of overall financial products, the insurance industry has also got impetus due to digitisation.?This digital drive is augmented by medical and life-threatening fear created due to pandemics. Earlier, insurance was more seen as a push product and now it’s being bought largely for the need it meets.?It would be early to say that Life Insurance has become a pull product but now easier to nudge someone to buy insurance in true essence.?We should not be dependent on pandemics to accelerate insurance adoption rather insurance literacy needs to be increased across all age groups. Financial inclusion can’t get teeth into until it becomes a part of our education system. Also, creating a digital platform where all life insurance policies bought by an individual are seen in one place can be a smart way to improve timely settlement and create more buying for the product. It should include even insurance provided by banks (PMJJBY, PMSBY), credit card companies and through other avenues.

The question that arises is - where does insurance fits in my investment portfolio? Your investment portfolio should follow a pyramid shape. A financial pyramid is a strategic approach in managing an investment portfolio where the base of the pyramid is made up of low-risk investments, the mid-portion is composed of saving & investment instruments and the top is of speculative investments. All our saving and investment plans can go awry if we are not properly protected. Our financial planning should follow from bottom to top approach and not vice versa. However, generally, we start somewhere in between in the financial pyramid. The discussion is more around what return or interest I will receive and accomplish the same without considering the base of the financial pyramid

Protection is the foundation of financial planning. Our base needs to be rock solid. Protection is like a Stepney in your car or parachute in the aircraft. You never know when you will need it but when you do, it can save your life. Protection is a risk-hedging tool.?

According to PWC, insurance is now considered a necessary risk mitigation tool, not an investment product for the wealthy. This has nudged people to demand insurance. PWC estimates that only 18% of the urban population and around 14% of the rural population is insured. Life insurance penetration (Premium percentage as the percentage of GDP) is 2.82% in FY2020, below the global average of 3.35%, while life insurance density (ratio of premium to population) is 58 USD, much below the global average of 379 USD.

The question that arises is how much life insurance cover do we need? It can be calculated in the below manners:

A) Think of all the life goals you would like to fulfil in your life and put a price tag to all goals, add it together and the final amount should be the required life insurance cover.

For example:

·????????Child education and marriage,

·????????Monthly household expenses,

·????????Retirement

·????????Aspirations like buying a car & house etc.

The total amount should be your risk coverage requirement.

B) Consider your monthly income and multiply it with your monthly receivable cheques in the future. You can increase a certain percentage each year as your income will increase every year to some extent.

Calculating the above two could be complicated and tedious, so a simple thumb rule can be used to check your current coverage level.

We notice that with the increase in age, your protection requirement decreases. It is due to a decrease in your responsibilities and an increase in mortality. Also, insurance companies offer risk coverage basis the mortality experience attached to the age. So, it's advisable to buy a term plan at the right age to have higher coverage.

Life insurance, in particular, a term plan has got impetus due to the pandemic and?customers now view life insurance as an essential expenditure and service. With the digitisation and availability of insurance at the omnichannel platform, in the coming days, the conviction and demand for term plans will further go up and would continue to save families in uncertain adversities by offering adequate financial support. The days are nearing when life insurance will move from a fringe to mainstream product in the financial portfolio.

P.S. Views expressed are personal to me and does not represent any organisation view