Being a football lover, I find the game extremely exciting but it requires patience, perseverance and timing. The fact is that the game can take a turn at any moment and that adds to its charm. Life, like a football match, is inherently a series of unpredictable events. Adequate safeguards are needed in everyday life and in terms of financial planning. Proper strategy and well-thought-out moves can go a long way in securing our life goals.
Bear Bryant’s famous quote is that “aggression sells tickets, defense wins championships.” Tarun Chugh, MD and CEO, Bajaj Allianz Life, says that a good financial plan with the right mix of investment options creates the defense you need to secure your financial future. With increasing financial literacy, rising income levels and greater awareness, as well as greater technology adoption and policy reforms, more and more families in India are understanding the need for long-term financial planning. People understand the importance of quickly adding a multi-benefit life insurance policy for protection. In fact, life insurance policies are one of the top three preferred investment options in the overall household financial savings mix. It has grown at a CAGR of 11% from FY 2019 to FY 2023, contributing 18% to total financial savings.
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If we look at it from the insurance penetration perspective, the situation looks really optimistic, as almost 70% of the households in our country are covered by some kind of life insurance policy. I see this growth as a positive sign overall, however, the worrying aspect or the main question is whether the cover is adequate?
Despite being one of the fastest growing economies, World Bank data shows that the total sum insured as a percentage of GDP in India is barely 70%, compared to 251% in the US, 143% in Thailand and 153% in Malaysia. This highlights the significant differences in the amount of insurance coverage. When buying an insurance policy, people do not always take into account whether adequate life cover will be required when the need arises.
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Without adequate life insurance, families may be forced to sell other assets or liquidate other investments to meet key financial needs, impacting their life goals, and Indians are increasingly recognising this need. Inadequate coverage often results in inadequate financial support for families, meeting only a portion of their needs, thereby defeating the purpose of a term plan.
A comprehensive assessment of current income, savings, liabilities and family situation can help determine the appropriate level of life insurance that should be part of financial and life goal planning. A general rule of thumb is to secure life insurance equivalent to 10 times one’s annual income. This will ensure that the policyholder’s family is adequately financially supported in the unfortunate event of his death.
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In recent times, we have seen that our regulatory body IRDAI has made several reforms towards providing ‘Insurance for All by 2047’. These include improving the business and regulatory environment as well as implementing risk based capital regime, IFRS and risk based observation structure. All this has been done to increase insurance penetration in India in the next few years. Interestingly, IRDAI is constantly expanding its digital ecosystem, creating a favorable business environment and improving the regulatory environment and all this is being done to ensure the growth of the sector and make insurance accessible to more and more people in the country.
The industry and regulators together are taking several measures by introducing new, simple and innovative plans, improving distribution channels and adopting new-age technology for faster and more transparent processes. This is aimed at increasing the reach of life insurance and increasing awareness about adequate coverage. This presents a conducive environment and opportunity for everyone to review their financial portfolio and understand the importance of adequate life cover. Just like a strong defense plan in football ensures a game-winning season, a proper defense plan in your financial portfolio helps your family stay on track with their life goals.