Life insurance is a relatively underdeveloped market in India when compared to other types of insurance. Despite having a population of over 1.4 billion people, the country’s life insurance penetration is only around 3.20% as of December 21 as reported by the regulatory body. Furthermore, the majority of life insurance policies purchased are traditional/hybrid savings plans or market-oriented investment plans rather than term insurance.
Reasons for Term Insurance’s Low Acceptance in India
Lack of awareness: One of the primary reasons for term insurance’s low acceptance in India is a lack of knowledge about the product. Many people in the country are unfamiliar with the concept of term insurance and the benefits it offers. People may be more familiar with traditional/hybrid savings or market-oriented investment policies and may be unaware that term insurance is a less expensive and more effective way to protect their loved ones in the event of their untimely death.
Misconceptions: Another reason for term insurance’s low acceptance in India is misinformation about the product. Some people believe term insurance is only for the wealthy and that the average person does not need it. Others may believe that term insurance is overly complicated or not worth the money.
Expensive premiums: Another reason for term insurance’s low acceptance in India is the perception that premiums are prohibitively expensive. Many people in the country are on fixed incomes and may be unable to afford the high premiums associated with traditional savings or market-oriented investment policies. They may be unaware that term insurance is significantly less expensive and can provide a high level of protection for a fraction of the cost.
Significance of term insurance:
Provides financial security to the family: Term insurance is a type of life insurance that protects loved ones financially in the event of an untimely death. The death benefit or the amount of money paid out to the beneficiaries, can assist them in meeting expenses such as mortgage payments and other bills. This can provide them with the financial assistance they require to maintain their standard of living and cover any outstanding debts or obligations. It can also provide them with the financial means to pursue education or other opportunities that may have been harmed by the death of a loved one.
Low premiums: One of the primary benefits of term insurance is its low premiums when compared to other types of life insurance policies such as traditional/hybrid savings or market-oriented investment policies. This is due to the fact that term insurance only provides coverage for a set period of time, and premiums are calculated based on the length of the term and the amount of coverage. As a result, term insurance can offer comprehensive coverage at a fraction of the cost of other policies. This makes it more accessible to a broader range of people, including those on a tight budget.
Flexibility: Term insurance is also important because it provides a lot of freedom. One can select the term length that best suits their needs, ranging from a minimum of 5 years to as long as one needs until he/she reaches the age of 100 years. This enables one to match the length of coverage to one’s specific financial goals and objectives. Furthermore, the amount of coverage required can be selected. This means that the policy can be tailored to the individual’s needs.
Leverage for loans and credit: Term insurance plans can also be used as collateral for bank loans and credit. Financial institutions frequently regard them as low-risk investments. This is due to the fact that the death benefit of a term insurance policy is guaranteed, and the beneficiaries will receive the death benefit if the insured dies during the policy’s term. As a result, banks and other lending institutions may be more willing to extend loans or credit to people who have term insurance policies because it provides them with an extra level of security and protection.
Several strategies can be used to increase the popularity of term insurance:
Education and awareness: Educating people about the benefits of term insurance and how it works is one of the most effective ways to popularise it. This can be accomplished through the distribution of educational materials, workshops, seminars, and other forms of educational programming.
Marketing and advertising: Another strategy is to market and advertise term insurance in a way that potential customers will find relatable and appealing. This could include utilizing testimonials, success stories, and other forms of social proof to demonstrate the advantages of term insurance.
Make it simple to buy: Make it simple for people to buy term insurance. This could include making the application and documentation process as simple as possible and providing a variety of payment options for the policy.
Use the digital medium: With the increasing popularity of digital platforms, it’s a good idea to use them to reach out to potential buyers. This may include using social media and search engine advertising to spread the word.
Collaboration with other organisations: Collaboration with organisations that serve a similar target market can be an effective way to reach out to potential customers.
The role of insurance companies and regulatory bodies in popularising term insurance is critical.
• Insurance companies can help to popularise term insurance by providing a variety of low-cost policies that are easily accessible to customers.
• They must spend money on marketing and advertising to educate customers about the benefits of term insurance.
• Regulatory bodies, on the other hand, can help to popularise term insurance by creating a favourable environment for the insurance industry, enacting regulations that encourage competition among insurance companies, and establishing minimum standards for the policies that they offer.
• Furthermore, regulatory bodies can provide consumer protection measures and additional (double ?) tax benefits to term insurance buyers in addition to what is provided under section 80(C) of the Income Tax, which will encourage people to buy term insurance policies.
• To raise awareness about the importance of term insurance, both insurance companies and regulatory bodies can invest in education and awareness campaigns. Insurance companies and regulatory bodies can work together to raise awareness and interest.
Finally, the key to popularizing term insurance is to effectively communicate its value while also making it simple to purchase. One can help to increase awareness and interest in term insurance by focusing on education, marketing, accessibility, and affordability.