Opinion: Is life insurance an absolute necessity?


By Indu Attygala

The global life insurance industry is estimated to have grown by around 3% in the past years. Much of this growth has been led by the robust performance of investment products in emerging markets, especially in Asia. In comparison, the Sri Lankan Life insurance industry was the most attractive industry by the end of 2019 with outstanding year-on-year growth of 9% and industry size increasing to Rs. 85 billion despite many challenging economic conditions.

Sri Lanka's fastest-growing life insurer Softlogic Life too managed to register a growth of 25.6%—almost triple the industry growth. This is thanks to a number of innovative products, creative marketing campaigns, leaner and faster processes, exemplary customer service and strategic expansion in distribution channels

These results go to show the importance that the current adult population is giving to this misunderstood necessity. However, there are still many in Sri Lanka who overlook the full potential of a life insurance policy due to several misconstrued myths. Here, we have handpicked seven popular myths associated with life insurance. Let us tackle them one by one.  

Myth Number 01 - Only the breadwinner needs life insurance

Although a family with only one working parent may think they only have just one income source to protect, in truth, the stay-at-home parent too should be covered by insurance. The demise of a stay-at-home parent will almost definitely kick up costs for the entire family in terms of expensive child care, transportation and even possibly healthcare due to excessive emotional strain on the breadwinner. Life insurance coverage for a stay-at-home spouse also allows the working parent the opportunity to take time off work and help the family adjust to their loss.

A tailored Family or Child Plan is a great option, one that offers a life cover during the term of the policy or a lump sum payment together with accumulated bonuses declared every year. An ideal insurance partner usually offers flexible benefits for accidents, deaths, funeral expenses, critical illnesses, family healthcare, family income, and spouse covers. Further to conventional products, child education policies to support the higher education of the children in the untimely demise of the breadwinner are also great safety nets to put in place. Ensuring that your requirements are well-captured in the policy and that the payments are done on time will in turn ensure that you are taken care of when your needs arise.

Myth number 02 - Young people do not need to worry about life insurance

The general disposition of life insurance amongst the young is that they do not need life insurance. However, having one makes the most sense when you are young since the premiums are less expensive and you have fewer financial obligations to fulfil. The longer one waits, the more expensive it will tend to be and the more likely you are to develop a medical condition that makes it much more costly.

Of course, the biggest problem with procrastinating life insurance is that by the time you need it, it is too late to get it or there is not enough time for the policy to mature properly. Every person's situation is unique. Whatever decision you make when it comes to life insurance, it is always smart to be thoroughly informed and choose an insurance partner with a renowned reputation built on integrity, broad product portfolio and excellent customer service.

Myth number 03 - Investing is smarter than spending on a life insurance policy

To make an investment, a significant amount of capital needs to be acquired first which usually takes a considerable amount of time. During which time should something happen to you, your dependents are left to rely on whatever small capital that has been collected. However, when it comes to an insurance policy, you are able to cover your full liability with just a small monthly premium, which will kick into action fully in the event something happens. Also, life insurance has several advantages compared to an investment vehicle such as stocks and mutual fund. First, life insurance receives preferable tax treatment compared to an investment vehicle. For a permanent life insurance policy, usually there is a guaranteed minimum return within the policy. So even if the market is declining, your cash value is still guaranteed not to drop or will increase by the guaranteed amount. Third, life insurance will round up your investment portfolio. Instead of having an investment purely in the equity market, having a life insurance policy means you are exposed to your own mortality risk.

Therefore, establishing a life insurance policy outside your investments can help ensure that your family has enough readily available cash if something happens to you. With Softlogic Life's Protected Investment Plan, you also have the option of getting a protection benefit and a unique loan facility on your investment if you still want to go the investment route.

Myth number 04 - Your employer-provided medical insurance is all you need

Remember, medical covers provided by employers are only available until you are employed in a company or till retirement. Typical employers will not cover your funeral expenses or family's living expenses in case of your untimely demise. It is therefore highly advisable to buy a life insurance policy that covers medical needs while you are young and healthy. Or, you might miss taking full advantage of it when attempting to do so before retirement.

Myth number 05 - Life insurance is expensive.

Many people assume that life insurance policies are costly and overestimate the cost of life insurance. In reality, there are many types of life insurance products each tailored towards different personal needs and wealth levels. For example, if you are relatively young and are in good health, you can start with an affordable term insurance policy. Keep in mind, the premiums for the life insurance policy are affected by factors such as gender, issue age, occupation, and underwriting class. One can always purchase a policy with an affordable monthly premium and sign up for additional policies as their disposable income grows. Starting early can help keep your monthly premiums low. It ultimately comes down to personal choice and the discipline to set apart a monthly amount for the benefit of your future.

Myth number 06 - My health disqualifies me from life insurance.

There are a lot of companies that cover a range of health conditions and some even specialise in high-risk cases with an additional premium. You can also purchase a policy that is not medically underwritten at all. Just be aware that they tend to be more expensive and have lower coverage limits. However, it should be noted that the issuing of the policy lies on the sole discretion of the insurer.

Myth number 07 - Life Insurance comes with an extremely lengthy underwriting process

Even for traditional term life policies, the insurance industry is focusing on accelerating the underwriting process and providing as much convenience to customers as possible. Many companies have implemented or started to develop accelerated underwriting processes that use mathematical modelling to quickly predict your underwriting class based on data and various health records.  Softlogic Life has recently pioneered a digital process that allows more than 60% of our policies to be underwritten automatically—a first timer within the Sri Lankan life insurance industry –in addition to running a fully paperless system. Our customers can simply purchase a life insurance now from our advisors via our advisor app. 

Most people don’t think about life insurance until they have to. It usually happens when their financial well-being becomes increasingly intertwined with someone else’s, which can come with getting married, buying a home or the birth of a child. Those happy events don’t make the task of buying life insurance any more pleasant, it just makes it more urgent!

 (The writer is the Chief Operating Officer of Softlogic Life)

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