Inflation biggest concern for Indians, only 6% sufficiently insured: study

Increased costs of daily consumption items, and rising medical and education costs are the key concerns amongst Indians, according to a study conducted by SBI Life. 

The Financial Immunity Study 3.0 surveyed 5,000 respondents across 41 cities in India and uncovered critical insights.

A sizable proportion of 43% of consumers now consider inflation as their crucial concern in today’s economic climate whereas last year increasing costs of daily items were rated as the lowest concern last year for consumers. In 2023, 35% of surveyed consumers have voiced concerns about increasing expenses of education. There has also been a significant rise in mental health concerns and stress. In order to brace themselves for these challenges, at least 52 per cent of those surveyed have some form of investments, savings and insurance. 

This allocation is ratioed with 17% towards savings, 16% towards financial assets, 11% towards life insurance, and 8% towards health insurance policies.

To achieve financial security and have multipe sources of income, the majority of Indians are investing in mutual funds and equities while managing expenses effectively (49 percent), creating secondary sources of income (41 percent), purchasing or increasing life as well as health insurance coverage (37 percent) and purchasing gold (35 percent).

Indians in their 20s rated their financial immunity to be relatively lower, with an average score of 6.6/10. This age group prioritises fulfilling their immediate desires and wants. Their investments tend to be short-term and high-risk, with returns intended for wish fulfilment and travel aspirations.

“Although 68 percent 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,” the report 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. Example: A consumer with an annual salary of Rs 10 lakh must have a minimum life insurance cover of Rs 1 crore. When asked about the reasons for the lack of appropriate coverage, the main reason cited by most was a shortage of funds

On the other hand, those in their 30s displayed a greater emphasis on financial planning and insurance, resulting in the highest average score of 7.2/10 among the groups. Surprisingly, people in their 40s reported a lower financial immunity score compared with those in their 30s with a score of 6.9/10, suggesting missed opportunities given that insurance ownership is far more economical if purchased in the 20s rather than later.

Most preferred insurance plans in India

Amongst surveyed consumers, a significant majority of 75% indicated that they possessed some form of insurance coverage. Savings plans emerged as the most popular policy amongst surveyed consumers with 50% owning a savings plan. The popularity of savings plans can be attributed to their tax savings benefits and the assurance of guaranteed returns upon maturity.

At least, 39% owned term insurance policies, while 28% held child plans, making them the second and third-most owned insurance policies, respectively.

The survey also revealed that a staggering 47% of consumers had surrendered or not renewed their policies within the last five years.

Despite the undeniable significance of insurance, nearly 50% of consumers revealed a tendency to prematurely surrender their policies, despite the intended long-term nature of such commitments. Another crucial driver behind this phenomenon is the sudden need for funds, revealed the study. 

People 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.

Nearly 80 per cent of consumers rely solely on employer-provided insurance policies. "However, it is observed that 96% of employees covered solely under employer-provided insurance coverage are underinsured. This discrepancy arises due to employers adopting a one-size-fits-all approach, primarily based on an employee's seniority, while overlooking the personal details of the employee’s life that would ensure appropriate coverage," noted the study.

The silver lining

The prevailing lack of insurance coverage amongst Indian consumers, combined with inadequate coverage amongst the insured, presents a significant task for the insurance industry in narrowing the existing gap. However, there are

encouraging signs as consumers indicated a willingness to purchase life and health insurance policies within the next five years. Approximately 46% plan to buy life insurance and 39% intend to purchase health insurance within the next year. 

Additionally, 32% of uninsured individuals expressed interest in insurance policies that offer flexible payment and coverage options. This flexibility alleviates the burden of fixed premium payments and may help address the illusion that insurance can be surrendered during immediate short-term liquidity needs. Further, approximately a quarter (24%) of uninsured consumers prioritised simple products with low premiums, indicating a preference for simple-to-understand and cost-effective options