Unlocking Liquidity: The potential of a formal secondary market for life insurance policies in India

financialexpress.com:

Prime Minister Narendra Modi’s recent comments regarding the appreciation of LIC share prices have captured widespread attention. Shareholders are rejoicing the high market value of LIC shares, anticipating favorable returns should they decide to liquidate their holdings. However, amidst this excitement, an important point is being overlooked: the purpose of life insurance extends beyond seeking short-term returns from its shares. Due to its unique nature, which differs from other investment products, the public often undervalues and misunderstands life insurance.

Life insurance an undervalued investment: Household investment spectrum consists of a wide range of alternatives, varying in their risk, return and time horizon. Common investors normally tend to compare and mix these investment avenues that are not necessarily substitutable. Due to this ignorance, the return on life insurance is often compared with other investment products like shares. This is comparing oranges with apples. As a result of this misplaced comparison, the life insurance investment is considered as having lower returns compared to other options.

The primary purpose of life insurance is to offer protection against the risk of death. It isn’t intended for short-term returns. Short- or medium-term financial needs can be addressed with products like mutual funds or shares. Life insurance serves as that part of wealth which is kept away from the routine ups and downs of life, safeguarded for the family in the event of the breadwinner’s death. Hence, life insurance investment deserves a unique and significant place in every individual’s investment portfolio.

Unfortunately, this unparalleled value of life insurance is not realized by people. In India,