It is common for individuals to purchase an insurance policy for tax-saving purposes or without considering the long-term goal of buying insurance. But in case of an untoward incident, would your family have enough backup to be self-sufficient? Let’s find out if you have enough insurance coverage to safeguard your loved ones by understanding the meaning of being underinsured.
What Does Being Underinsured Mean?
Individuals purchase a life insurance policy to offer financial cushioning to their family in case of an unfortunate mishap. So, while purchasing a plan, you pick a sum assured amount that shall be paid out to your loved ones to manage their finances. But what if the chosen amount isn’t enough to cover them? This is known as being underinsured.
Let’s take an example to understand the concept better. Assume you have purchased term insurance with a sum assured amount of INR 50 Lakh. Then, you buy a house of your own to live with your family and also begin planning for a child. Your home loan is INR 30 Lakh, and your spouse is a homemaker. If one day something happened to you, would INR 50 Lakh be enough for your family to pay off the home loan, manage their daily expenses and your child’s education? Certainly not after, you consider the impact of inflation as well.
What Are the Dangers of Being Underinsured?
Here are some common disadvantages of being underinsured that you should consider:
- Lack of financial support
In case your spouse is a homemaker, they might have to get a job to support the family’s expenses. But if they already have a job, the pressure of making ends meet could lead to a stressful situation. Managing the expenses of your dependents, paying for children’s education, paying off any pending debts, etc. shall leave your spouse without much savings.
- Pressure to give up certain opportunities
Now that your family barely has any savings, your children may have to give up on higher education opportunities. The need to lessen the financial pressure might also drive them to get a job instead of studying at a university.
- Zero savings for retirement
As most of the income has been spent on covering loans or debts, your spouse wouldn’t have enough help to plan for their retirement. Unless they have invested in pension schemes, they would have to rely on their emergency fund during retirement.
Factors to Consider for Getting the Desired Coverage Amount
- Estimate the household expenses
When it comes to household expenses, it includes rent, food, lifestyle choices, bills, etc. that are paid for with your monthly income. Estimate the overall cost of paying for these requirements along with the inflation rate as the cost of things won’t remain constant.
- Consider medical costs
Though your family might not suffer from any medical conditions, age-related ailments will soon affect your spouse and parents. Due to the increasing healthcare costs, certain illnesses can easily burn through your savings. So, having enough coverage to purchase health insurance and continue paying the premiums for the long term is a must.
- Take debts into account
Do you have a home loan or a personal loan? Has your child taken any educational loan? You must take the EMIs for such debts into account as well. Calculate the tenure of these loans and the total amount, which is pending.
- Determine future goals
Life goals like higher education, marriage, retirement planning, leisurely lifestyle, etc. must also be determined and added to your insurance sum assured amount.
Now that you know the dangers of being underinsured and how you can arrive at the ideal sum assured amount, ensure to get enough coverage. Various types of life insurance policies enable you to get higher coverage or wealth creation options to fulfil life goals. So, purchase life insurance to secure your family today!