Influence of Behavioural Biases on Decision Making process while making investment in Insurance in Indian context

Abstract

The perception of people at large towards any insurance product is need for everyone but it is seldom kept on priority. Insurance holds a considerable importance in layman’s life as it caters the financial security needs contributing to social welfare. Insurance plays the vital role in social welfare as it is recognised by the government for providing tax benefits in India. The changing life style in this era has resulted into increased risk of life and in addition spending habits have also been influenced. Under this situation, Insurance for life cover and inculcating habit of saving out of disposable income has proved to be an effective and trustworthy instrument. But being non priority commodity from the many people’s perception, Insurance is sold using aggressive marketing techniques or is it made mandatory in some schemes, due governmental interference. Since Insurance hedges risk, emotions of the buyers are associated with it. It was found that emotions arising out of fear and risk have significant influence on decision making process. These emotions are called as behavioural biases and comes under the domain of behavioural finance. There are many behavioural biases which are studied. This paper aims to study two such behavioural biases viz.. Framing bias and Mental Accounting bias which have significant influence on decision making process while making any investment in insurance.