Indians giving up on insurance as cost of living shoots up: SBI Life report
About 47% of people surrendered their life policies or failed to renew them in the past five years, says report prepared by Deloitte
More and more Indians are finding themselves too cash-strapped to financially secure their families against unforeseen emergencies, exposing the country’s widening inequality.
The grim picture emerges from a recent finding that a whopping 47 per cent of people either surrendered their life insurance policies or failed to renew them in the past five years. The alarming trend in India's financial landscape is the key highlight of the third edition of SBI Life’s Financial Immunity Report unveiled earlier this month.
The report cited investment in alternate financial instruments and budgetary constraints for premium payment as the main reasons for the drift. “Experts mention that often, clients try to dissuade their wealth managers from purchasing adequate insurance policies. However, the risk of creating wealth without the safety of an insurance policy leaves the scope for partial or complete loss of financial assets due to unforeseen events,” the report said.
It said that despite the undeniable significance of insurance, nearly 50 per cent of consumers displayed a tendency to prematurely surrender their policies.
“Another crucial driver behind this phenomenon is the sudden need for funds. Consumers often choose to surrender their policies to reduce premium expenses when faced with an urgent need for liquidity. During our consumer study, it was observed that almost a fifth of the consumers chose to surrender their insurance policies due to urgent financial requirements,” the report revealed.
The report, titled ‘Demystifying the Indian Consumers' Illusions: 2023’, was prepared by Deloitte for SBI Life encompassing 5,000 respondents drawn from 41 cities across India.
Another startling revelation made by the report is that only a small fraction of consumers are adequately insured. “Although 68 per cent of surveyed consumers believe that they are sufficiently insured, only 6 per cent of consumers are in fact sufficiently insured under their current insurance policies,” stated the report.
The lack of adequate insurance coverage among most consumers is also primarily due to inadequate premium budget for relevant coverage amount, it said.
To be sufficiently insured, experts believe that an insurance policy must provide 10 to 15 times the annual income of the household as coverage. For instance, a consumer with an annual salary of ₹10 lakh must have a minimum life insurance of ₹1 crore.
When consumers were asked about the reasons for the lack of appropriate coverage, they mentioned shortage of funds as the prime reasons. “A certain amount of my yearly income goes towards premiums for my family’s insurance. It has been constant for several years, and I do not increase it, because the cost of living is high and by the end of the month, there are hardly any savings,” the report quoted a male consumer in his 30s as saying. The consumer is married and a father of one.
Inflation and increased living expenses are the key concerns for the consumers, the report noted. It underscored the increasing cost of daily consumption items, rising medical costs and increasing cost of education besides job loss and loss of income as the main concerned areas.
“While the impact of the pandemic begins to ebb, rising inflation and living costs have once again emerged as major concerns for Indian consumers. The study findings highlight that while consumers harbour the intent to protect and secure their loved ones financially, there is an existing gap between intention and action,” it said.
LIC steps in
The government, regulators, decision makers, corporations and institutions must take a proactive role in addressing this gap and encourage citizens to obtain adequate insurance coverage for their financial immunity, the report suggested.
Endorsing the findings of the SBI Life, a senior functionary of the Life Insurance Company (LIC) based in Kolkata said that income disparity has significantly increased after the COVID-19 pandemic. “This inequality is also reflected in the insurance landscape,” he said, opting for anonymity.
LIC has launched a special campaign for revival of lapsed policies with effect from September 1, he said. It will continue till October 31. It is offering a special concession of up to 30 per cent in late fees for reviving the lapsed policy during the campaign period.