Life insurance favorite investment class of urban Indians

Life insurance products are the hot favorite of most urban Indians as an investment option and they are likely to earmark over half of their investable income for these products in future, says a study by market research firm Nielsen.

According to Nielsen's study on the life insurance sector and investment patterns, 'LIFE 2011', a little over 60 per cent of urban Indians hold insurance policies, which are likely to account for a large share of their future investments as well.

A look at the shift in investment habits over the last two years indicates that people are returning to fixed investment products, while investment in risky categories like equity is on the decline.

The study said that Indians, in practice, remain "risk averse" and the main drive behind an urban Indian's investment is returns, followed by unforeseen emergencies and child education.

"Given the recent volatility in equity markets and rise in commodity markets, urban Indians, being traditionally risk averse, are returning to safer, more traditional investment products like life insurance, given the tax benefits and limited risk associated with the product," Nielsen Head - Finance Practice Subhash Chandra said.

As per the study, there is a sizeable opportunity waiting to be tapped. The young investor segment accounts for nearly a fifth of the population and most of them currently do not hold a life insurance policy. This space is the also the most enthusiastic to invest in life insurance in the immediate future.

"With the youth entering the workforce at high salaries these days, the young investor segment is a huge opportunity for most financial service organisations. Coupled with the historical acceptance of life insurance as a safe investment and the added tax benefits that it provides, life insurance seems to have retained favour with even the young investors," Chandra added.

There is also an opportunity to expand coverage by way of additional policies, as around 16 per cent of life insurance holders are open to investing in a new policy within the next six months.

"While in the short-term, marketers can look at ensuring conversions from this segment, the long-term opportunity for life insurance marketers lies in increasing dual policy ownership. Hence, marketers need to promote the benefits of opting for a second policy to current policyholders," Nielsen Finance Practice Head Insurance and Investments Anand Parameswaran said.

Indians are still not open to making insurance purchases over the internet, going by the response of current policyholders, Neilsen said.

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