You must have seen the advertisements for 'Sabse Pehle Life Insurance' in recent times. The ad campaign and the website is a joint effort of the insurance industry. The apparent aim of this campaign is to tell people why they should take life insurance 'sabse pehle' and provide information and answer questions (FAQs) that arise from this. It's a good goal to have.
This is a laudable goal. Life insurance should definitely come 'sabse pehle'. When anyone starts working and has any dependents, then it should be a very high priority to ensure that if you die then your dependents get enough money to get by financially. It's really the simplest concept in personal finance, or at least it should be.
However, the 'Sabse Pehle Life Insurance' website goes on a strange detour while describing the route to this financial goal, and by the end of it, it's hard to tell just whose financial interests are being served here.
The problem is simple. The website is extremely careful in ensuring that the person going through the website does not come to know about the concept of term insurance. The phrase itself occurs on the website buried deep in the 'glossary' in one sentence under the definition of 'non-participating plans'.
Let's see why hiding the existence of 'term insurance' is a problem. Here's the dictionary definition of insurance: an arrangement by which a company or the state undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a specified premium. For life insurance, we can simplify this to: an arrangement by which a company will compensate your survivors if you die, in return for payment of a specified premium.
Note that this is a completely distinct concept from investing money. The amount of money your family would need if you die suddenly is quite unrelated to how much money you are investing today and where you are investing. Typically, when people start earning and would like to provide for their dependents in case they die, they don't have much to spare for investing. Later in life, the balance shifts and they need both. Much later, as their kids grow up and become independent, the balance may shift almost entirely towards investments. Essentially, for a well-planned financial life, planning insurance and investments in a distinct and unconnected way is essential. Coupling the two leads to bad planning, without fail.
In order to make correct decisions, life insurance must come first, but it must be term insurance. Which brings us to the rather uncomfortable question: why does the 'sabse pehle life insurance' campaign work so hard to completely hide the existence of term insurance? After all, every one of the two dozen insurance companies that make up the industry has term insurance products, IRDA has extensive regulations that govern the design and operation of term insurance policies. No one can pretend that they don't exist, so why try to do that?
Can you guess why the option of term insurance needs to be hushed up? Can any one of my readers here guess? Can anyone in the insurance industry explain this shyness? Perhaps someone at IRDA can solve this mystery?
As a matter of fact, I'm sure everyone knows. The fact remains that term insurance is the best type of 'sabse pehle' insurance policy for people, but is also far less profitable for the insurance industry as well as for those who sell insurance. Term insurance is the cheapest form of buying life cover and making your family's future safe. There can be no argument about that. Since it is the cheapest, it is also the least lucrative for the insurance industry.
The money is there to be made in ULIPs and endowment plans, and those are what the industry campaign promotes. In fact, in the so-called 'Knowledge Centre' of this website, there is an article 'Endowment plans and ULIPs - know the difference'. This is the only part of the website which discusses actual policy types but completely ignores the existence of the most important type of policy!
All in all, the young Indian who has just started earning and wants to get insured would be ill-served by going to this 'Sabse Pehle' website. If you do stumble upon it, it would be best to ignore this blatant attempt to steer the customer to more expensive ways of getting insured.