Is insurance good for future planning? Definitely not, I would say offhand.
After all, an insurance is not a wealth builder. Insurance is not an investment too. It serves only to protect family and self in case of eventualities and emergencies.
Several attractive options to put money while earning large returns are easily available in India.
This is aptly seen from figures that Insurance Regulatory and Development Authority of India
(IRDAI) regularly releases. However, there are certain exceptions where insurance can prove good for future planning.
Insurance Shockers in India
India has one of the lowest penetration rates for both life and non-life insurance in the world.
- Only 2.6 percent Indians from the country’s total population of over 1.35billion hold life insurance of any sort finds HSBC Research. India Economic Survey pegs this number slightly higher, at 2.72 percent.
- Non-life or general insurance coverage in India is available to a dismal 0.77 percent of the total Indian population.
A visible drop in insurance premiums and sale of new policies is evident after 2010, says IRDAI. The phenomenon is traceable to launch of Unit Linked Insurance Policies (ULIPs) that flooded the Indian life insurance market before 2010. These ULIP based policies come with high premiums but no significant benefits for customers.
However, despite these figures, insurance- both life and non-life- can prove good for future planning. It depends upon various factors. There are several factors to consider before buying
Let us discuss these through this article.
Advantages of Life Insurance
1- A life insurance policy can prove vital for a family where spouse and kids are fully dependent upon a sole income. In the unfortunate event of death of the policy holder, often the sole breadwinner, life insurance provides some money to overcome money shortage. This allows some comfort for the bereaved family while saving the ignominy of borrowing money they may never be able to repay.
2- Easier access to home loans is one major benefit of holding a life insurance policy, especially from state-owned Life Insurance Corporation of India (LIC). It allows a family to own a dream home. They need not worry about losing the only shelter if the policyholder passes away. The life insurance policy takes care of the balance loan amount.
Disadvantages of Life Insurance
1- Premiums for a good life insurance policy tend to be fairly high. In stark contrast, returns from the policy are fixed and minimal. The same money can fetch higher returns if invested in high rated Mutual Funds, stocks and commodities markets.
However, MFs, stocks and commodities markets do not assure income since they are prone to market swings. Yet, they provide excellent returns if a person remains invested for long.
Further, MFs, commodities and stocks prices always rebound. Hence, returns from these investments are higher. Here, it is important to remember, a life insurance policy is not an investment by any standards. You are just buying some financial security for the family to tide over your death- as and when it occurs.
2- Given advances in healthcare and medicine, Indians now enjoy longer lifespans. Unfortunately, life insurance policies do not fully cover inflation that occurs over decades when the policyholder remains insured. Hence, money paid by insurance companies to survivors can prove grossly adequate at the time of payout.
Nowadays, the new breed of financial institutions, known as Small Finance Banks pay over 9% interest per annum for senior citizens. This amount somewhat matches inflation rates in India. It is easier to redeem an FD in comparison to complex insurance claim procedures.
Savings schemes by India Posts offer fairly decent returns. Their Monthly Income Scheme is a good option for senior citizens to invest money and get some income for lifetime.
Advantages of Non-Life Policies
1- Keeping in mind the soaring cost of healthcare, putting money on a health insurance
policy can prove worthwhile.
Nowadays, several nationalized banks in India offer medical insurance schemes in collaboration with insurers. These are fairly affordable and offer similar benefits to those sold directly by an insurer. Cashless policies enable critical medical treatment even if the victim does not have adequate cash.
2- Insuring your household can prove useful if you have valuable belongings. It will cover your home as well as contents up to a specific amount. A home insurance policy also covers thefts and burglaries. You can customize a home insurance or household insurance to suit specific individual needs. Some companies also insure mobile devices such as smartphones, tabs and laptops.
3- Vehicle insurance is mandatory requirement under existing Indian laws. It is not possible to renew your vehicle’s registration and road permit without presenting a valid policy to the authorities. Hence, buying vehicle insurance is inevitable. It pays for repairs and medical treatment, if you get into an accident. You can cover own vehicle and life too with vehicle insurance.
Disadvantages of Non-Life Insurance
1- Certain hospitals and clinics tend to inflate their bills and put patients through unnecessary diagnostic checks while seeking inpatient treatment with medical insurance. Consequently, the policy becomes useless if another member of the family also needs medical treatment.
Cashless is not often so. Some insurance companies can ask you to cough-up part of the medical expenses under some pretext. Most medical insurance policies come with riders, terms and conditions. They do not cover pre-existing illnesses. Sometimes, you need to wait for three years or longer to avail full coverage.
2- A classic example of household insurance and its shortcomings is highlighted by the Bollywood blockbuster movie, OMG. Claiming home insurance can prove more complex than negotiating through a crystal maze. It involves extensive documentation. Often, insurers do not pay you adequately to cover losses.
3- Vehicle insurance, despite being compulsory under laws, seldom comes handy. A third party generally does not accept repairs of a damaged vehicle on insurance, because it involves hassles. Furthermore, third parties can repair their damaged vehicles only at certain workshops listed by the insurer.
The facts above might help decide whether your insurance is good for future planning. That most Indians sideline life and non-life insurance amply illustrates the typical Indian mindset. Personally, I believe having limited insurance covers that are not expensive suits any individual and family. You can decide based upon the above facts.