The dangers of being under insured

“Zindagi ke sath bhi, zindagi ke baad bhi”

Underinsurance indicates that the life insurance that you have purchased is inadequate to protect financial future of the family. In case of the claim, such family will get assured sum which is not enough to fulfil the various financial requirement of family. Due to under insurance, a person puts his/her family into serious financial risk.

For example, if a person has life insurance coverage of 15 lacs, however the insurance cover that person needs are 25 lacs. Then the person is under-insured for 10 lacs.

Safety and protection is the most important concern in today’s world. Future is unpredictable. You will never know that what will happen to you in next few seconds. Being under-insured creates an illusion of protection but it is actually equal to no insurance at all. Insurance provides a safety zone. India is deliberately ignorant about the signs of life and non-life insurance. Insurance penetration level in India stands at 3.9%, whereas world average is 6.3%. It is an estimate that over 80 crore people in India have no insurance cover, out of remaining population most of the people are under-insured.

Following are some reason why people buy insufficient life cover-

1. People usually purchase an insurance plan just to avail tax exemption not to get risk cover. Therefore people think more about the premium they have to pay that sum assured.

2. Another prominent reason is that the agent who is selling policy is only interested in the commission. They hardly think of the benefit of buyer, so they force the buyer to buy costly plan than adequate plan.

3. Choosing wrong product may offer an under insurance coverage

How to identify you are under-insured?

It is important to find you are underinsured, so you can avoid your family’s financial risk. Firstly, you need to calculate your need for insurance. According to thumb rule, the sum assured should be 15 times of your annual income, but it has several restrictions.

For insurance requirements, you can add outstanding loan amount, child’s education expenses, child’s marriage expenses, regular household expenses and other financial expenses.

With an under insurance cover, your family will get an amount, which is inadequate to meet their financial obligations and they have to face a severe financial problem after your death. It’s an urgent need to evaluate the needs of your family and choose the right life cover.