The insurance sector in India has experienced a rapid growth in the last decade. Despite steady growth in this sector, the penetration of Life insurance in India is only 3.4% in 2016.
Using the statistics, we can deduce the fact that very fewer Indians have opted for term insurance plans. One of the major reasons behind this is ignorance about the importance of life insurance. Consequently, they end up purchasing plans that do not offer a proper coverage. This ignorance is the major reason why people often financially jeopardize the future of their loved ones.
It is, therefore, important for everyone to understand the repercussions of not having a life insurance plan. Another important thing that you must remain heedful about is the steps to pick out the best insurance plan according to your needs. Doing so will help you ensure a secure future for your loved ones.
Under-insurance means that the insurance purchased by you is not sufficient in order to financially protect the future of your family. In our opinion, anything below Rs.1Crore should be considered underinsurance in terms of life cover.
Let us check out a few reasons why people buy life insurance plans that do not offer sufficient life cover.
1) People usually purchase an insurance plan just to avail tax exemptions and not as a policy that helps them at the time of an emergency. The insured sum depends largely on the premium the insured pays for the product. Moreover, people think more about the premium they have to pay than the sum assured their family will receive.
2) Another most prominent reason is that the agent who is trying to make a sale is interested only in the commission. They hardly think of the benefit of the buyer. So, they force the buyers to buy costly life insurance plans that offer inadequate cover.
3) People often make wrong decision and end up buying the wrong product. For instance, if you try to buy a life insurance policy that offers a cover for Rs. 1 crore through a unit linked insurance plan (ULIP), the premium will be too much for you to afford or continue the policy for long.
Purchasing an insurance policy may create a delusion of getting complete safety. Due to this, you will relax and will not focus on savings. This will put you in a very bad position in case of any mishap. You will get to realise that your insurance cover is not sufficient only at the time of an unfortunate event. In such cases, you will realise that you won’t be able to pay your debts, leave aside paying for your children's education and other expenses.
What you should do if you are Underinsured?
The very first thing you should do is to calculate how much insurance cover you ideally need now and also calculate how much cover you might require in the near future. Though there is no rule as such to calculate an ideal sum assured, most of the people opt for 15 times of their yearly income. However, this suffers from a lot of limitations as it does not consider factors such as age, liabilities, expenses, living standards, etc.
Now that you know the fact that you are under-insured you need to take some steps in order to reach a decent insurance coverage. To find out a decent coverage, you need to assume all your expenses including the impact of inflation on them. The best way to get a higher coverage by paying a minimum premium amount is to opt for Term Insurance Policy.
Why is it best to purchase a Term Insurance Plan?
Term insurance is the best if you are under-insured because it is the best way to increase your coverage amount by increasing the sum assured. Moreover, term plans are cheaper. So, if you already have any other life insurance (non-term) plan, which does not cover you sufficiently, buying a term insurance cover, will not be much painful for your pocket.
The ball is in your court!
Being underinsured mars the purpose of taking an insurance policy. So, if you have already taken an insurance plan out of sheer ignorance, you need to figure out ways to increase your life cover. Now that you have already purchased a non-term insurance plan, one of the best ways to bridge this gap is to purchase a term insurance plan. There are several term plans, available in the market, which can help an individual to increase their insurance cover at a very nominal premium.
If you are underinsured and you are still not sure what you need to do to increase your insurance cover, feel free to contact us. We will be glad to help!