Nudging Individuals to buy term insurance policy

(As opposed to buying ULIPs and For-profit plans)

Group-C3
Anshuman Nayak (MBA2020-034) | Mihir Malhotra (MBA2020-092) | Rajshree Agarwal
(MBA2020-125) | Satyam Mishra (MBA2020-139) | Shruti Goyal (MBA2020-151)

Why might people prefer ULIPs and for-profit plans over Term insurance?
➢ Optimism Bias
People are confident that they will live longer than the policy period which is usually till 70 to 85 years. They
are positively biased towards their survival; this makes term insurance unattractive to them even if it
provides huge sum assured in case of death. Term insurance only provides benefit in case of death of the
policy holder, if not then the premium amount is not recovered, since people are optimistic about their
survival beyond the policy term, they see premium amount as waste of money. Hence, they end up buying
ULIPs or For-profit plans in which the premium amount is recovered with interest.
Nudge
To curb people’s optimism, they should be reminded about the chances of dying before their policy period
which will motivate them to buy a term plan. This can be done through subtle popups, which are designed
to show details, trivia, and other relevant information about the chances of death. Popups will be shown on
the relevant platforms where people’s choices about the insurance purchase gets influenced for example
insurance company’s website, banks, wealth management firms, Pharmacies, clinics, hospitals etc.
For instance – if a customer opens an insurance app a popup will appear showing life expectancy which
might correct his/her biasness towards the chances of dying.

➢ Availability Bias
People tend to purchase ULIPs and other for-profit plans due to lack of information about the better
alternatives for them such as term insurance. More advertisements and promotional efforts are done to sell
ULIPs and for-profit plans, this leads to poor decision making based on limited information.
Nudge
Before purchasing any insurance policy customers will be asked to fill an awareness form about insurance
asking questions inclined towards term plan such as

Questions Yes No
Do you know the life expectancy of India is 70 years?
Do you know that term plans come with huge sum assured?
Do you know insurance is different from investment?
Do you know that term plan’s premium is lower than that of For-profit
plans?

➢ Information overload
Insurance is the category which is filled with options having minor differences. Customers get overwhelmed
when they visit any site to buy or research about the insurance policies for their need, also various
intimidating terms are used to describe any policy which makes it difficult for them to choose the right
policy. Too much information is difficult and cumbersome to assimilate before making any decision.

16-03-2022 Group C3
Nudge
Default options can act as a powerful nudge to encourage customers to choose term plans. If a customer
wants to buy life insurance, term plan can be set as a default option. This can also act as an anchor with
which other plans can be compared by showing differences in terms of premium, coverage, tenure etc.

➢ Other Nudges
Relativity- Application and sites can be designed in a manner that motivates buyers to choose term
insurance for example when a customer tries to buy insurance on any app or site, s/he can be directed to a
page as shown in the above image.

Framing- The information can be presented through popups and sales pitch in a manner that motivates
buyers to choose term plans in places like banks, websites, apps etc. this is because speaking confidently
acts as a nudge.
Some of the examples are as follows-

• More and more people are buying term plans in India.

• X people die before the age of 85 years.

Testimonials stating term insurance benefits by financial experts can be shown on website and offline
stores. Also, literature related to term insurance can be kept in more visible places like waiting area, cash
deposit desk, information desks etc.

Bandwagon effect – A setup for experiment can be made in which 3 jars can be placed on the information
desks in bank branches, wealth management firms etc. each containing chits representing the number of
people who have bought term plan, ULIPS, and other for-profit plans. Term plan jar would have visibly
more chits when compared to other jars, which will show the popularity of term plan and influence people to
buy it since people will believe that more customers are choosing term plan over others.

16-03-2022 Group C3