People invest to make money. Though their motivations-a bigger house, better education for their children or better retirement for themselves-may differ, their objectives do not. Most decision theories in finance are based on one supposition-that investors always act in a manner that maximizes their returns. The higher their risk appetite, the higher is the return they get on their investments. This is the investment perspective. Insurance, on the contrary, is on a totally different footing. It is a risk management tool.
The perspectives being different, it is often said that returns and insurance should never be sold together. Life insurance in our country all these days has normally been bought more as a tax saving tool than as a protection. The introduction of Section 80C, however, has widened the choice on offer for the investors. On the tax saving front, the life insurance industry has to brave a lot of competition from products, viz., Equity Linked Saving Schemes, Public Provident Funds, National Saving Certificates, Unit-Linked Insurance Plans (ULIPs). Life insurance and ULIP in this changed context are being touted more as a product, which combines both protection and returns. The tax advantage continues to be the undercurrent. |
