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India’s insurable population is estimated to reach 750 million by 2020 with a life expectancy of 74 years. However, insurance penetration in the country was 3.9% in 2013. The ratio of premium to Gross Domestic Product (GDP) was 3.1% for life plans and 0.8% for general insurance plans. This was significantly lower than the global average of 6.3%.
Insurance penetration is based on several factors, such as the economic development of the nation, size and reach of the service providers, and the savings rate in various financial instruments. Although most people agree that they need insurance, a majority of them do not acquire such coverage. People do invest in the best investment plans however when it comes to life insurance they are skeptical
Here are five reasons why most people do not acquire insurance coverage.
1. Not prioritizing insurance needs
Most of the individuals insure their homes, cars, and other assets but fail to insure their lives. Many people do not like to think about death, which is why they do not consider acquiring life insurance coverage. Unfortunately, individuals fail to comprehend that all their assets are replaceable but life cannot be replaced. Considering how their family members will survive in case of their demise is very important and not setting insurance priorities in the right order may be one of the biggest mistakes to make.
2. Tedious offline procedure
When individuals start looking for coverage they come across several kinds of insurance plans. Some of these include term plans, endowment policies, and money back plans, besides others. Some people may find it difficult to comprehend the plans and the complexity may cause them to procrastinate regarding their decision.
Even after deciding on the type of insurance policy, they may have to undergo a long and tedious procedure. The application form is often lengthy and requires them to provide several personal details. Furthermore, most insurance companies require the applicants to undergo a medical examination to determine their current health status. Several people are hesitant to provide information on pre-existing medical conditions and other personal details. This cumbersome procedure often acts as a deterrent for people who want to acquire insurance coverage. However, many insurers provide the facility of applying for an insurance online, thereby making it a convenient and hassle-free process.
3. Life insurance myths
Several myths surround life insurance, which is why its penetration in India remains low. One of the biggest myths is that the sum assured is available only if the policyholder passes away. However, this is true only in the case of term plans. Other kinds of insurance policies offer survival benefits at the end of the policy term.
Furthermore, individuals need to remember that the primary objective of acquiring such coverage is to provide financial security to their family members in case of their sudden demise. Therefore, even if the survival benefits are not available, acquiring insurance for the security of the loved ones is important.
4. Lack of awareness with regards to cost and expenses
A majority of people consider a life insurance policy to be expensive. However, this is not completely true. A person who is young and is in good health may easily purchase a policy without having to pay huge premiums. The amount primarily depends on factors, such as age, health condition, risk profile, and the type of insurance. Many people do not purchase life coverage because they are unable to fit the premium within their budgets. However, researching the different options and opting for term plans may be an excellent yet inexpensive way to avail of such coverage. Another way to make the premium affordable is to purchase the policy at a younger age when the risk profile as assessed by the insurers is low.
5. Lackadaisical approach
The laid-back approach adopted by most people is one of the biggest reasons of the low insurance penetration in the country. Some individuals continue to delay the purchase of insurance thinking they are young and healthy. Others often wait to acquire insurance coverage until they are married and have children, which increase their responsibilities. However, death is uncertain and a person would not want his family to face difficulties in the case of his demise.
Many individuals think they do not need insurance. A good knowledge of income tax slab also helps to avail tax exemption benefits from life insurance. However, they must consider what would happen to the surviving family members in case of their early death. They would certainly not want their loved ones to face financial constraints in the future. Therefore, individuals must opt for life plans and safeguard future well-being.