For financial freedom to be real and meaningful, the tool of insurance needs to be popularised and provided to all citizens with convenience to purchase and maintain.
When India attained freedom in 1947 the freedom fighters visualised an era when every Indian would lead a life free from hunger or any infringement on his or her rights. But this was all connected with political freedom. And people still needed freedom from uncertainties in life. Within 10 years of independence, the government decided to nationalise the life insurance industry and mandated the new organisation to bring the message of financial security to all. The visionary leaders knew that financial security for the poor and the middle class was as essential as food security. At the time of freedom, a little over 200 companies or organisations were providing life insurance to the salaried class mostly. But such companies were confined to cities and their target group was very limited.
There was limited awareness about the needs and the benefits of life insurance. In fact, life insurance was literally sold and never demanded by any segment of the society. In 1956, through an ordinance on January 19, the government nationalised the life insurance business and on September 1, 1956 established LIC of India through an Act of Parliament. This initiative gave the much needed boost to the business of life insurance as a powerful tool to provide financial security to the masses.
Birth of LIC
Being a public sector, LIC enjoyed huge credibility and over a period of time reached out to a very large number of people in the rural areas besides covering people in the urban centres. Before 1956, Indian insurers had only 56 lakh policies in their books but currently LIC sells more than two crore policies a year and Indian insurers have 35 crore policies in their records. Today, India has 24 life insurance companies selling policies to about three crore people in a year. The sector serves the society by providing people freedom from sufferings and humiliation if unfortunately the bread earner dies. In the current market scenario, there is a very good opportunity for the discerning customers of life insurance to secure himself and his dependents through a variety of products.
The insurers provide for long-term savings opportunities through their unit-linked policies for financial freedom after retirement. There are term policies which secure the family at a very low cost during the period the dependents are yet to settle in life and need financial support. The insurers also provide for annuity plans for providing financial security in old age. Any earning person is always in need of regular cash flow when he ceases to earn by way of superannuation. Traditionally, the insurers have been the annuity providers to the people who are not eligible for pension being outside the government employment.
For financial freedom, life insurance must be supported by not only the state but also organisations working for the welfare of people. For financial freedom to be real and meaningful, the tool of insurance needs to be popularised and provided to all citizens with convenience to purchase and maintain. When, after five years, India will celebrate 75 years of freedom, the average age of an Indian is likely to be 75 years. This demographic milestone will be a major challenge for the providers of financial security.
The writer is former MD & CEO, Star Union Di-Ichi Life