When insurance tries to be everything, it fails

When Dhirendra Kumar’s column ‘Insurance should just insure’ questioned why India continues to defend poor-value insurance products, it touched a raw nerve. The piece, sparked by a LinkedIn post from Sanjiv Bajaj defending ULIPs and endowment plans, quickly grew into something bigger—a candid public debate about what insurance should really do, and whom it actually serves.

Across inboxes came agreement, arguments and anecdotes.

Insurance should insure, not invest

“Instead of spending Rs 25,000 for a Rs 10 lakh insurance with profit, say max 6.5 per cent, it would be far better to split the same into Rs 15,000 for a pure term cover of say Rs 50 lakh up to age 60, and invest the balance in an index fund,” wrote Satyajit Manakkadan. “Do we get a return on motor, housing or travel insurance? Then why look for returns on life insurance?”

P S Banerjee echoed the thought, calling the article “absolutely perfect. In fact, flawless.” He blamed insurers’ “narrow profit motive” for failing to popularise term plans, arguing that if they had promoted cheap, plain insurance “in the right earnest,” they would have achieved both higher reach and higher profits.

Several readers also questioned the moral logic of the industry. “You and I have been harping on this simple financial literacy for decades, but reality hasn’t changed,” wrote Rajen Agrawal. “The insurer keeps duping the insured, who still remains happy. The real reason: both are greedy for gratification during their own lifetime, which term insurance doesn’t promise.”

The bias is emotional, not mathematical

But not everyone saw bundled products as pure villains. Priyanjan Das argued that financial behaviour isn’t just about arithmetic. “For many middle-class families, paying Rs 25,000 annually for 25 years with zero return and 100 per cent capital loss is psychologically and financially difficult,” he wrote. “Losing the entire premium if one survives the term feels harsh. That’s why many see ULIPs as a middle ground—modest protection, some savings and tax efficiency.”

Parin Doshi agreed, noting that ULIPs still have relevance for “upper middle-class investors in the highest tax bracket but earning below Rs 50 lakh,” given tax exemption on returns.

Ashim Bhuyan offered a pragmatic counterpoint. “For the last couple of decades, there have been a lot of initiatives, including by Value Research, to make Indian citizens aware about differentiating life insurance and investment opportunities,” he wrote. “Yet practically, things didn’t work out that way. One primary reason is affordability, in the context of life insurance, and of course, the milieu. I believe Sanjiv Bajaj’s views may be appreciated in this context.”

We bought returns, not protection

Others traced the confusion to history and structure. Gopala Krishnan, a long-time LIC observer, reminded readers that “in earlier years, LIC was the only financial institution besides banks,” and that people naturally viewed insurance as a savings product. But now, he said, “people have awareness, options are many, and bundled plans just don’t cut it.”

Abhay Dixit expanded on the behavioural angle: “People still don’t trust term insurance because after completing the policy, they feel their ‘investment’ was wasted. They never think that they didn’t meet any tragic incident—that not dying itself was the return.”

Debraj Sengupta, meanwhile, blamed the system for incentivising the wrong kind of selling. “Indians love savings bundled with insurance because they fear they won’t receive maturity proceeds from pure risk cover,” he wrote. “Endowment and money-back plans yield only 4–6 per cent IRR—inefficient for wealth creation. The IRDA’s campaign ‘Sabse Pehle Insurance’ remained mostly on paper. The essence should have been to promote adequate life cover, not just the number of policies.”

A fix for the future

Some readers went beyond criticism to suggest practical reforms. Nandkumar J proposed that “corporates should ensure insurance for their employees” through mandatory group cover—a step that could make workplaces more secure and employees more loyal.

Debraj Sengupta suggested linking affordable life cover to bank accounts with small incentives for continued coverage. Shishir Parhi called for “IRDAI to spend money on insurance education the way SEBI educates investors.”

As P S Banerjee summed it up, “The fundamental concept of life insurance is timeless and boundaryless”—insurance should just insure.

Credits

Nandkumar J, Satyajit Manakkadan, Debraj Sengupta, Rajen Agrawal, Gopala Krishnan, Abhay Dixit, P S Banerjee, Priyanjan Das, Ashim Bhuyan, Shishir Parhi, Parin Doshi

Also read: Learning the hard way, but early

This article was originally published on November 11, 2025.