The covid-19 pandemic has increased the need for and awareness of life insurance protection more than at any time in the past.
It’s more pronounced in the case of non-resident Indians (NRIs) in the UAE, who are now scurrying for insurance cover in the face of job losses, income reduction, disease and death.
At a webinar organised by Barjeel Geojit Financial Services; Pankaj Gupta, senior executive vice president (sales) & chief marketing officer at HDFC Life, emphasised the importance of insurance to address various risks related to the pandemic and the economic impact on individuals’ lives.
This is in line with a recent YouGov survey commissioned by Zurich International Life, which found that life insurance has become a top priority for almost 50% of UAE residents since the outbreak.
How much cover?
But getting the right protection is a key question.
How much insurance should someone have, for themselves and their family, in the context of the covid-19 crisis?
“Human life value is the right way of going about it when one looks at his own personal life and the insurance protection,” Gupta said.
“One way to think about it is to determine the number of years his family is going to be dependent on him.
“One has to consider how much money he needs to reach the point where his children are financially independent, and if he has to reach that point, what is the amount of money that is needed.
“From that amount, he has to subtract the sum that is already saved.
“The remaining amount is needed to be the savings to provide for his children and that is the minimum life insurance he needs.”
Gupta continued: “Then he has to talk about his spouse’s situation. If he does not survive her, how much of an income does he need to give her to manage the house till their children become financially independent.
“These are simple thumb rules one can use, depending on his net assets, liabilities and income stream so that the remaining balancing amount that can be the life insurance amount,” he said.
Basic, but vital
These facts may sound basic, but the reality is that most individuals, especially expatriates, view life insurance as an avoidable expenditure.
Those who understand the need are clueless on the amount of insurance cover they should buy.
There is already a protection gap in India, which means a majority of the population is not insured or under-insured.
So, everybody needs to think of protection as part of his investment strategy and overall financial strategy.
The savings behavior of average NRIs is that they consider bank fixed deposits are the most secure and liquid.
But there are so many other instruments on offer by banks and financial institutions, including insurance companies, that give capital guarantee as well as protection.
Gupta said: “One thing which is there with life insurance is that it tends to be less flexible and not as liquid as fixed deposit.
“However, one needs long term disciplined planning. Any instrument which is highly liquid also means that the investor might break that investment. Life insurance, because of the nature of the long term planning, helps one to do those disciplined saving over a long time.”
The saving(s) grace
The covid pandemic is panning out in such way that professional and personal lives and job situations are becoming increasingly uncertain.
Interest rates are moving close to zero or dipping into negative territory pretty much all over the world. Lower interest rates are actually good for the economy in general, but not very good for savers who want to live off of the returns.
“Life insurance covers have stood the test of time and payment of benefits under respective policies by life insurers in these testing times proves that it continues to be an effective tool of financial planning,” said Anand Singh, senior associate in the insurance and reinsurance practice at law firm BSA Ahmad Bin Hezeem & Associates, in response to the YouGov survey.
“As a result, the demand for protection policies and life insurance has seen an increased demand despite the lack of liquidity in the market,”
