Byapaar.com – The Indian Business Blog

Different people have different needs at various stages of life. So they have to plan accordingly and make some investments for financial security. For long, state owned insurance companies like Life Insurance Corporation of India (LICI) have been offering lots of investment options in India along with traditional saving agencies like banks and post offices. LICI has been the most dominant player in this field with almost monopoly status.

But the scenario has changed since Indian economy started liberalizing and opened up the sector to private and foreign players through IRDA bill in 1999 amidst protest from many quarters. Not surprisingly the who is who of global insurance majors rushed into Indian market and set up shops after tying up with local companies who have little or no experience in insurance business. Soon the market became hot as news players started to market their products more aggressively seldom seen in India. People got spoilt of choice as agents now came to homes or offices with insurance quotes their offered by their respective companies. My intention here is not to write about the history of insurance companies but it is absolutely necessary to know the background for the main topic.

So everything has been going smoothly for all with a booming stock market and fast growing economy. It has been like honeymoon for both investors and insurance companies. But nothing in a market environment is permanent and one fine day in the middle of September this year everything came tumbling down as world financial markets crashed. As most insurance companies invest funds they collect from clients, most of them suffered huge losses due to the global financial problem phenomenon.

To cite a personal example, one of my colleagues invested Rs. 50,000/- with an insurance product offering high returns (thus highly risky) and linked to stock market with life insurance as an added option, lost more than half of his investments in less than one year due to Indian Sensex loosing more than hundred percent. When I asked him why he choose the plan rather than going for traditional saving options, he referred to the agent who pointed out only the benefits of the plan and not the risk factors.

I sincerely believe it is not only him who was little bit greedy and due to lack of proper knowledge made a bad investment. Most middle-class or lower middle class Indians are ill educated in financial matters. So this recent crash would have caused many of my fellow citizen loose huge sums because they invested in wrong investment policies.

It is imperative that people do proper study of plans they are investing in. One must gauge various aspects of a policy such as risk factors or he should question how the company is being able to give high benefits. One should also remember that higher the benefits, higher are the risk.