Insurance is a form of risk management that is primarily used to cover the risk which can happen accidentally, at any time, and for uncertain losses. Insurance is a mechanism that is designed to cover the risk taken by the insurer by pooling a reserve of money to protect the insured from possible losses.
A life insurance policy is a contract between an individual and an insurance provider, in which the insurance company provides financial protection to the policyholder in exchange for monthly fees which is commonly known as life insurance premiums.
The pandemic brought in fear and uncertainty, making us realize how we need to build physical immunity to maintain good health. But the uncertainty also helped us understand the importance and need for building our financial immunity for the long run. And life insurance has been one of the most important protection tools that have come to the fore and saved the financial future of many families.
When we think of life insurance they only product we must consider is Term Insurance. It is not a form of investment; rather it is a technique for increasing one’s financial immunity to deal with future uncertainties. We should keep in mind that the insurance premium is an investment to provide a healthy financial future to our loved ones.
Life insurance, especially term insurance should always be taken with a futuristic view. It means you should discount your future income as well as future expenses at the time of arriving at the insurance amount. But sometimes when we do so, we may not be in a position to afford the current premium, or else the cover seems very big in the current scenario. This may lead us to be under insured. That’s why we have to relook at our life insurance sum assured periodically when life’s prominent milestones are achieved.
A family suffers a huge emotional loss and a possible financial loss due to the untimely death of the breadwinner. Emotional loss is irreplaceable, but a financial loss could be replaced by life insurance. Therefore, you must calculate the sum insured by taking into account all the future financial needs of your family.
The mindset towards buying life insurance has changed drastically after the pandemic. Pre covid people were not so keen to have insurances done on priority nor did they recheck the requirement of adequate sum assured based on their increased income or family responsibilities. But after Covid, common people are now taking insurance buying very seriously.
Recently SBI Life Insurance released their Financial Immunity Survey 2.0 Report to decode the evolving behavior of Indians towards being financially prepared and the association role of life insurance. The survey reveals that 78% of Indians feel that it is extremely important to have Insurance in their financial planning process. As people become more cognizant of their vulnerabilities, they are able to better understand the benefits of buying life insurance products to ensure their dependents remain financially stable in the future.
The second wave reignited the fear of the loss of life and led to a sharp rise in investment in insurance products. This led to an increase in the number of Indians purchasing insurance for the first time. It states “In the context of the ongoing pandemic, the importance of financial security and stability of self/family in case of any uncertainty has increased as compared to the first wave from 41% to 57%.”
The reason for the stress could be that some people may not have life or health insurance at all. But even those that do have insurance are under insured. Both these situations are scary. As per the survey, although Indians feel Life insurance is important, they seem to be under insured with ~3.8% times the cover of their annual income which is below recommended 20-25X of annual income. Most Indians do not increase their life cover as their income increases; this could be due to additional hassles involved in buying new policies & a low level of understanding in terms of adequacy.
But because of being under insured in case of an unfortunate event their family may not be able to have the same standard of living that they currently enjoy as well other financial targets may not be achievable due to a shortage of funds.
SBI Life’s Financial Immunity Survey 2.0 found that 70% of the Indians strongly feel that the sum assured must increase as and when life’s prominent milestones or life stages such as marriage, childbirth, and buying a home are achieved.
Keeping all these points into consideration we conclude that one of the most obvious advantages of life insurance that everyone seeks is financial protection for family and loved ones. In exchange for a relatively small premium every month, you get a higher life cover that acts as a favorable financial cushion for your family in your absence.
Life insurance comes with peace of mind that in your absence, your family and loved ones will be taken care of as you might have planned.