In this world, nothing can be said to be certain, except death and taxes. Benjamin Franklin expressed the realities of life several centuries ago. Despite its inevitability, often we see untimely death leading to a family facing severe financial consequences.
Term insurance is the purest form of insurance, where for a relatively small premium, a very high cover (~500-600x) is available.
Term insurance needs to be part of any prudent financial plan especially during the income generating years of the family’s breadwinners. Despite being one of the simplest and the most affordable life insurance product, its adoption rate remains surprisingly low.
Only 60-70 lakh Indians have term insurance plans and there too, the amount covered under term plan is mostly inadequate.
What stops India’s middle class from buying term insurance cover?
Limited awareness
A large segment of the population is unaware of the benefits of term insurance. Insurance in India is largely a push product and often, sales advisors don’t push term insurance as it has a lower ticket size than other insurance products. Given its relatively late introduction in the country, familiarity is low.
No-returns bias
India is a price-sensitive market where any investment is linked to tangible future returns. It is a pure risk cover with no returns. This leads to confusion around its usefulness and consumers often end up choosing other products which have much lower coverage but some returns.
Low priority
Term insurance is seen as low priority after addressing essential expenses and loan repayments. For many middle-class households, immediate financial needs outweigh the importance of long-term protection. Insurance premiums are often seen as an avoidable expense.
Procrastination
The widespread belief of “I will do it later” is perhaps the biggest deterrent. Some think they’re too young to obtain term insurance or perhaps too old?
The truth is this stems from an inherent optimism bias which leads people into assuming accidents, illnesses or untimely death won’t hit them. This couldn’t be further from the truth.
In fact, purchasing term insurance early lets you lock your premium when you have a healthier and lower risk profile which translates to lower premiums for life. While a 30- year-old can obtain a ₹1 crore cover for ₹1,100, a 40-year-old will pay double the premium for the same coverage.
India’s vast addressable market for term insurance lies in the middle — taxpayers without a safety net and families dependent on current incomes. The middle class must rethink their financial planning. Bargaining long-term security for immediate gratification is neither a wise decision nor sustainable.
Incentivise adoption
The deep-seated challenges require all stakeholders to work in tandem and create a conducive environment for consumers -
• Linking CIBIL score to term insurance. When you have a term plan, it signals that your liabilities, such as loans or outstanding debts, will be covered even in your absence. This assurance reduces the risk and positions you as ‘good debt’. Linking term insurance ownership to show a stronger CIBIL score would be a great way to incentivise adoption.
• Expanding tax benefits, specifically for term insurance or offering premium subsidies, could help spur adoption. The recent discussion around removing or lowering the Goods and Services Tax (GST) rates on life and health insurance plans is welcome. It would be a further boost if a tax deduction can be granted only for term insurance under the new income tax regime.
• One major reason people hesitate to buy term insurance is the fear they’ll keep paying premiums throughout their life, only for family’s claim to be rejected after their death. To address this mistrust, the industry needs to talk more about claims paid and the stories of the families who benefitted from the product. Such an initiative would also reinforce the core purpose of term insurance — providing financial security and peace of mind to families.
Insurance is both a private purchase and a public good. It is also a selfless act as the benefits go to family members and society.
Governments have driven adoption in various sectors through many schemes and sops.
Applying similar strategies to term plans could make financial protection more universal.
(The writer is joint group CEO, PB Fintech)
Published – January 26, 2025 08:44 pm IST
