Knowledge Centre

Educate Kids On Insurance Early

Have you ever sat down with your children to ask - what if we were to lose our home or a car in a natural calamity? What would they do if you were to fall sick and become incapacitated?

Our world is fragile from many angles and so are our lives. Thus, it is important to be prepared for the risk and uncertainties and importantly educate our dependent children for any such eventualities. The most natural solution lies in adequately covering risks by way of insurance, but this needs to be communicated by juxtaposing possible instances in life - such as loss of valuables or poor health – with an appropriate insurance cover to deal with it.

According to IRDA, India’s insurance penetration stands at a low of 3.49% of GDP, as on FY17, with General Insurance at only 0.77%. Despite many efforts to create awareness, insurance penetration remains low due to lack of functional knowledge. Even the insured seem unaware of some of the basics of Insurance and Insurance products, beyond what they see and hear on commercial advertisements. Over and above the role of a protective cover, insurance gives peace of mind by way of reducing the financial impact on families in case of accidents, illnesses and deaths. Thus, it needs to be appreciated by the beneficiaries as well.

In fact, many personal finance experts consider it to be a necessity to impart the basics of insurance to those who are dependent on the insured – a task easier said than done – since most of them would be young children or early teenagers, unexposed to the financial jargon. Hence, here are few tips to make them understand the need for insurance in our lives.

The fundamental – Concept of spreading the risk: While explaining the basics of insurance, focus on how insurance spreads the risk around a group of people, by pooling their money collected in the form of premiums – or simply put – introduce it as a team work. As a concept, insurance must be projected as a contingency to ensure peace of mind from unforeseen risk, which could lead to financial burdens in the future.

Give consequential perspectives: It may not be easy for young children to grasp the concept of Insurance, and hence they need to be given rain check scenarios across insurance options such as home insurance, health insurance and auto insurance to understand the need for protection. For example, health insurance takes care of not only the timely hospitalization and treatment of family members but also leaves no burden on family earnings (or savings) since the insurance pays for the hospital bills.

In case of a home and asset insurance, children may be asked to imagine a scenario – in which, a natural calamity makes them lose their homes along with all their belongings – hence the need to insure everything that they have to ensure continuity in life. Insurance allows a family to cushion the blow of an inconvenient or catastrophic event for a moderate sum.

Being exposed to the media, children are smart to appreciate implications of loss of something dear to them. Thus, health insurance which is critical for the entire family must be introduced as vital to keep them happy and healthy without troubling their regular life. Automobiles are popular among children and hence, it is easy to make them understand the auto insurance which maintains it in shape and efficiency. While explaining the need for insurance, parents need to use imaginative and chosen words so that the young dependents may realize the critical aspects of insurance.


Help them gauge the real value of every asset: Children would understand the true value of a car or a house only if you can spell it proportional to your salary or something that they cherish. Let them know the price tag and how it was acquired – through an expensive loan or spending out of savings. Most importantly, tell them how valuable it is to the entire family, especially to you and that you could hardly afford another one – if it is damaged. Thus, insurance can help you to regain the asset without paying the high cost.

Make them realize a disaster can happen to anyone: They may have known of or watched catastrophic events such as hurricane, tsunami, flood or earthquake in other geographies, but they must realize that a disaster -natural or otherwise – is very possible in their lifetimes and they must protect themselves as well as their assets through insurance. An example is an accident on the road in which your vehicle can be subject to a mishap by the fault of someone else or a natural disaster. Similarly, explain to them that no one is immune to illnesses or death.

Conclusion: Given their high exposure to information today, children are maturing faster than their previous generations. Besides instilling good values and manners, they need to be given basic lessons in personal finance; save for the rainy day, protect their assets by insurance, create a good credit score by fulfilling obligations on time and spreading your risk through an insurance cover is the smartest lesson of all.


By: Mr. Mukesh Kumar, Executive Director, HDFC ERGO General Insurance

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