It has not been long since the insurance sector was deregulated in India. But already there are a dozen life insurance companies to choose from and many more are said to be considering entering the life insurance business.
The potential of the Indian market is enormous and all these companies are inundating the customer with information -- each claiming product superiority and a business strategy that has success written all over it. In this environment of claims and counter-claims, is the customer truly able to see the benefits that a life insurance contract offers?
During my several discussions with potential customers, many have expressed frustration or confusion over the value of life insurance versus 'other' investment vehicles. What should they really buy?
Historically, life insurance has been sold in India for tax and investment considerations. But, a true life insurance product offers the right balance between protection against risk and savings, rather than being a pure investment product.
This realisation of prioritising protection is starting to take shape in India, with more and more people realizing the true value of life insurance.
Still often people find it hard to decide which road to travel while buying life insurance. On the one hand, you have a 32-year-old life insurance agent sitting in your drawing room, showing you impressive looking graphs and trying to tell you why life insurance is the best tax deferred investment tool you can buy.
You can almost hear his stomach growl as he hands you a pen with sweaty hands. "How bad does he want this sale?" you wonder.
That's one scenario. Consider another. You have a 48-year-old investment broker telling you how many of his clients got rich last year thanks to his advice and why anyone building an investment portfolio would be foolish to waste his m money on life insurance products.
He dazzles you parading impressive statistics and trends that compare interest rates between stocks, bonds, and life insurance products.
Deep in the throes of confusion, you decide that you better go with your 'gut' feeling and which salesperson sounds more sincere. The problem, of course, is that neither of these salespersons has your best interest at heart. What is more, they both have only a limited perspective on their own products and the niche they think the products occupy.
They are only concerned with making a sale, and getting as much commission from your purchase as possible.
So, they run down competition and use bluff and bluster to sell you a product you don't need. What is more, they crow about their sales techniques and train others to use similar tactics. They somehow manage to become successful mentors for others and the result is that the customer suffers and ends up in a situation where his financial planning is woefully inadequate.
So, what is the truth? The truth is their neither life insurance nor traditional investment vehicles (stocks, mutual funds, bonds, etc.) can replace each other. You must have both for a complete, intelligent and secure portfolio.
Comparing life insurance with investment vehicles is like comparing oranges with apples; they are two very different tools and both are important for your and your family's financial security. Investments deal with attempting to capitalize on calculated risks.
Insurance products deal with minimizing or eliminating risk. Properly written life insurance provides a family with instant replacement of both current and anticipated future income, should an income provider die unexpectedly.
There is no risk, speculation, market fluctuation, volatility or anticipation of unexpected financial windfalls involved. As long as you do not confuse it with investment-oriented life insurance products. Traditional investments are crucial to retirement savings, but investments take up to a lifetime to mature and grow.
What is your family going to do if you die tomorrow and can no longer fund or manage those investments? What happens if a family's bread-winner dies in an accident and leaves the spouse alone to take care of the kids, household expenditure and funding of retirement investments? That is what life insurance is for.
Assuming that a person has a family and is actively planning retirement with actual investment vehicles (mutual funds, stocks, bonds, etc.), I cannot imagine why that person would not want to protect all of that with life insurance.
Be careful while making decisions: In fact, the way we often look at insurance products creates most of the self-imposed and self-defeating obstacles to our own financial security. To give you an example, I recently had one potential customer ask me, "With the payout to the agent being tremendously higher, doesn't it make sense to promote life insurance products?"
Let's examine that statement. When I'm sick, I don't worry about how much a doctor makes when he orders a comprehensive blood test, as opposed to a needle test. Such thinking is called 'crab mentality' in our society. This is undoubtedly the principal obstacle for dedicated and honest insurance professionals trying to help clients with superior life insurance solutions.
Many people would rather hurt themselves with inferior service or products than see anyone else make more money than they reckon is 'fair.'
Don't worry about what a company is paying an agent. Concentrate on what value proposition the agent is selling to you. Be certain that you are not falling victim to this trap before you make decisions about your own security.
I have had many otherwise intelligent and thoughtful people ask me, "Why should I waste my hard earned money on life insurance products? I'm interested in my financial future, and life insurance only pays if I die."
The answer can be found within the question. Life insurance is not for you; it's for your family and dependants. If you're single without any dependents, you may not need life insurance. But if you are married, especially with a non-working spouse, or if you have children, there is simply no responsible way you can do without life insurance.
By buying life insurance, you can help make sure that those you leave behind are financially secure enough to:
Forget the sales hype: I hope I have been able to make the point about the need for life insurance vis-à-vis the need for savings instruments. Forget all the sales hype. Quite simply there is no conflict between life insurance products and other savings-linked products. When used prudently, they make a winning combination.
At Max New York Life, we have led the industry in offering customers in India the true value of life insurance -- which is protection. Our strategy to focus on protection has worked well. In just two years, we have emerged among the leading life insurance companies in India with over Rs 5,400 in sum assured, having sold more than 143,000 individual policies. We offer 11 products and nine riders that can be customised to over 250 combinations. Most significantly, 70 per cent of the policies we have written are 'Whole Life' policies, which offer our customers a prudent balance between protection and savings.
Life insurance is a safeguard against the spectre of death. The stodgy gray science of actuarial tables and payment schedules can change the fates of people and families. It can give them new life. That is why life insurance is a noble business.
The author is CEO and Managing Director, Max New York Life.
This article forms a part of 'Money Simplified Life insurance: Hear it from the experts', a free-to-download online guide from Personalfn. To download the entire guide, click here.
