Delinking Insurance and Investments

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We come across many instances, where people are sold insurance policies in the name of savings. People, particularly those from lower middle class, are most often the victims of this theory. Let us study its  backdrop and  evolution.

BACKGROUND :

When the life insurance was nationalized, the 300-odd private companies were operating more or less like today's chit fund companies. After nationalization, the primary objective of LIC was to inculcate the habit of savings in the evolving mixed economy. Since most of the services were run by Government, wages were low and so was cost of living. Primary services like education, medical care and transport were heavily subsidized and focus was given to small savings from Post Office and products like Postal Life Insurance and Endowment Plans from LIC were promoted by the Govt.

The scene changed drastically post liberalization. As the Governments withdrew subsidies one after the other private sector entered the space vacated by the Govt.institutions. Education was the first area which raised the cost of living. Sectors like Health care, real estate, communications, transportation followed suit. With no substantial rise in income levels in employed sector, the parity between future commitments and present income, began to widen.

ALIGNING WITH GLOBAL MARKETS :

When the insurance sector was opened to Private Enterprises, several new products were introduced, but the basis of insurance remained same. All products were designed around three basic concepts viz., Endowment, Money Back and Whole-life. Exclusive policies meant for children, women and senior citizens remained the same. With increase in companies, the spread of insurance has multiplied throughout length and breadth of the Nation. The specialized knowledge of Insurance, which was the forte of PSU insurers, slowly started spreading all around. The operational and technical expertise of MNCs, has paved way for establishing new benchmarks in client service.

But this was no solution to the gap between income and expenditure of an average middle class Indian family. The reason is simple - the returns given by either PSU Insurer or Private Insurers were simply not in a position to beat inflation. From Government's point of view, everything is fine - there is a positive growth in the Life Premium garnered by the Insurers and is being invested in the Stock Markets year after year.


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