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Embedded value: When all else fails, life insurance works

Embedded value: When all else fails, life insurance works

  • Category: Economy
  • Date 26-06-2020

Covid-19 has shaken up many well-established socio-economic values. The dreaded virus has severely challenged age-old methods and the means of production in factories, farms and in the offices. It is also redefining the whole concept of supply and distribution of goods and services.

It has thrown up challenges for those who survive the pandemic and draw up innovative strategies for society to limp back to normalcy. The infected are to be treated and saved but those who are not affected need to be provided not only a safety net but also food and other essentials which they are unable to afford. The lockdown has affected the income of many people and has forced reverse migration of the workforce from places of employment to their native places causing a severe disruption to commercial activities.

Lesson from the crisis

One important lesson from the current crisis is the need to adopt the concept of self-reliance at the individual level. The government must resist the temptation to jump forward to announce a bouquet of relief measures. It is not at all a viable strategy. The last three months have taught us several lessons. Along with fire fighting measures, the policymakers and the citizens at their own level must find out what could be the best safety net.

I strongly believe that life insurance, on a much wider scale and in all its forms and options, is the most scientific tool to mitigate hardship of individuals as well as of the state during such, mostly unforeseen, crisis. The very concept of life insurance is based on the principle of financially dealing with unforeseen crises in one’s life.

Role of insurance

The insurance business slowly but scientifically builds up monetary reserves to help policyholders in distress. Their fund which is actuarially validated never fails to honour all its commitments. The commitments generally provide funds to the distressed policyholders during their life time as well as after death. The protection is more comprehensively available through a combination of different plans and riders that one is free to choose.

Loan under an endowment policy can help a policyholder during the two to three months when salary is withheld or not paid at all. If life insurance is universalised through more socially oriented marketing by the insurers or through government policy that supports such a universal coverage, the hardship being faced by millions of working-class people uprooted following the lockdown could be mitigated.

Whenever an accident happens, the government rushes in to announce a certain lumpsum amount for the families of the deceased or of the injured. This is obviously at the cost of the exchequer. It may also happen that the dole is just given without assessing whether it was needed. If the PM’s Suraksha Bima Yojana is compulsorily provided to each citizen then where is the need to dole out ex-gratia amount.

Similarly, instead of knee-jerk announcements of lumpsum relief in case of death due to accident or any other cause, the PM’s Jeevan Jyoti Bima Yojana can be a wonderful support to the family in distress.


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Hence, instead of ad hoc relief the government must ensure universal acceptance of such insurance schemes. Insurance penetration is woefully low in India. The purpose of opening the sector 20 years ago is still a distant dream. But everyone, the general public, the insurers and the government must work for universalising life insurance for protecting the population in case of unexpected financial crisis at individual or national level.

It is observed that in the current life insurance landscape there are vast segments of middle and lower middle class population which are grossly underinsured or uninsured. Hence, through use of artificial intelligence and comprehensive digitisation, full potentiality in the market must be harnessed because life insurance develops self-reliance among the people and saves the economy from avoidable stress during difficult times.

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