How to Check if you have Adequate Insurance Cover - Don't be Underinsured

How to Check if you have Adequate Insurance Cover – Don’t be Underinsured

Roboadviso     Financial Planning     Posted On, Tue 14th November, 2017     No comments
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Insurance is needed by people for protection against different kinds of unforeseen events in life, including risk of early death, risk of a long life, risk of a life with a permanent or total disability, risk of fighting and surviving a severe illness, and risk of high medical expenditures, etc.

Many types of insurance products are available in the market to meet such requirements. One also needs to pay equal importance to the total sum assured by the policy. In developed countries, a lot of attention is paid to whether or not the insurance coverage is adequate. However, in India we really do not give much importance to having sufficient insurance cover.

According to information that is publicly available, only around 19 percent of the total Indian household savings is made up of life insurance. Also, the penetration of life insurance in the country is just 2.72 percent as against 3.99 percent in European countries and 3.37 percent in Asian region. On a global level, the average life insurance rate of penetration is about 3.47 percent. Insurance premium per capita, or insurance density, is another way to measure insurance purchased in a specific nation. Life insurance density in India was at INR 3069 ($46.5) as compared to nearly $962 for Europe and just over $229 for Asia.

The average life insurance premium per capita on a global level was at $353 and this is almost 7 ½ times the life insurance density captured in India. This figure is a clear indication of the fact that Indians are underinsured as a community. More effort is required to raise awareness amongst Indians about life insurance.

It is incorrect to assume that increasing rates of insurance premium is the primary cause of such high under-insurance in India. As per estimates in the industry, the premium rates have risen by just 3 to 4 percent in the past 4 years, along with 2.79 percent CAGR for insured sum of INR 2 to 3 lakhs, and 3.29 percent CAGR for insured sum of INR 5 to 10 lakhs. We therefore need to understand the real reason for under-insurance in India.

The primary reason for the inadequate insurance coverage among Indians is the fact that individuals have not made revisions of the term insurance or health coverage that they had purchased. Also, in instances where employers have sponsored the coverage, it has remained idle or been in decline. As per insurance sector estimates, people working full-time jobs in India believe that the coverage provided by the employers under the group scheme of the company is adequate for them. Due to this incorrect notion, Indians often end up paying huge medical bills whenever they face some kind of medical emergency.

Statistics of different types indicate that just 22 percent of Indians are insured. But it may be noted that a large chunk of this is due to varied government insurance schemes. The hard truth is the fact that just 5 percent of people in India are insured.

It may also be noted that two-thirds of the total insured in India are under-insured. It has been noticed that over the past decade or so, the minimum cost of a major medical treatment procedure in private hospitals is around INR 3 lakhs. If the hospital is run by a corporate company, then the medial expense increases further due to multi-disciplinary cures and cross-referrals.

Studies have shown that healthcare costs in India in the future are most likely to reach the same highs as they currently are in developed nations around the world. The studies have also found a drop in the percentage of medical claims which are paid or reimbursed vis-à-vis the total amount that is actually billed to the customer, particularly when the bill amount is over INR 3 lakhs.

Life insurance may potentially be the best method to safeguard the future of your loved ones. It is not just a financial decision but also an emotional choice.

There are several persuasive reasons to purchase life insurance, as listed below: 

  • Life insurance is purchased by individuals as a means to protect their spouse and kids from possible disastrous financial downturns that may befall them if they pass away.
  • Life insurance offers protection and financial respite for those how have to keep living without the company of the person who has passed away. Life insurance is a practical articulation of the care and love that you have for your family.
  • By safeguarding the financial future of his/her loved ones, the insured ensures that his/her family is able to maintain the usual lifestyle in the unfortunate eventuality of their sudden demise or other grave dangers.
  • Life insurance offers the family of the insured-deceased person a range of choices that helps them pay the EMIs, repay loans, and meet other kinds of daily expenses.

Is employer provided life insurance adequate?

Statistics show that 50 percent of the working population in India is self-employed and about 1/3rd of the workers tend to be contractual or casual laborers. Such casual/contractual workers or self-employed people may not have any kind of formal health or life insurance and hence are more likely to be considerably under insured.

Most employers and companies typically offer Mediclaim and life insurance cover to their workers. Insurance requirements may differ from one person to another and therefore group insurance cover offered by companies may not be adequate to safeguard the loved ones against any financial strife or other problems that may occur in case of the death of the breadwinner in the family. In case of the sudden and unfortunate death of a family’s main bread-earner, money is often required for the following purposes:

  • Repayment of debts like home loans, car loans, education loans, personal loans, credit card dues, property loans, etc.
  • Meet the daily expenses like housing/rent expenses, educational fees, and minor or major medical/treatment costs, etc.

As per group life insurance offered under the employee-employer scheme, most companies offer an insurance cover that is approximately equal to one year salary of the individual. Some employers may offer a higher insurance coverage of nearly 3 times the yearly salary of the person, or some other kinds of graded assured sums.

What is the right amount of insurance that one should seek?

Every person has different financial burdens and responsibilities as well as varied family status, all of which has an effect on their insurance requirements. The unsaid rule that needs to be followed when taking insurance is that you should take coverage that is adequate to pay for all the debts and liabilities. You should have sufficient coverage to secure future expenses that the family may have to possibly incur.

You also need to be aware of inflation over the next 2 decades and include that when calculating the insurance coverage amount. Additionally, you have to take into account the current wealth, devoid of lien, accumulated by you. This should be available to your family for disposal if needed. It is not correct to regard the house/home as wealth as it will be the place where the family will reside.

The employer insurance coverage is available for the duration of your employment at that company. Once you leave that job, the coverage expires. Hence, it is necessary to opt for additional insurance coverage such as independent term insurance/life insurance for a sufficient sum assured. You may speak with the life insurance company that is providing you with employer group insurance for information on getting individual insurance coverage.

 

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