Do you know the risks of being underinsured?
While more and more people are getting insurance for things they care about, underinsurance is still a major problem in our country. Misplaced information and lack of awareness result in people living their lives thinking they have enough insurance; until they file a claim and realise that they don’t. At a time like this, being underinsured is as good as being uninsured. It’s a potentially catastrophic situation that the best of us can find ourselves in.
What does it mean to be underinsured?
As the name suggests, underinsurance is the lack of enough protection provided by your policy. You can be underinsured in two ways:
Not enough sum insured: In this case, while you have the right insurance, you go for a lower sum insured, either due to the wrong estimation of future needs or just to lower the premium. The biggest problem with a low sum insured is that you just don’t have access to enough funds when there is a pressing need. Let’s illustrate this with a real-life scenario:
Picture a situation where you buy a health insurance cover with a sum insured of Rs 5 lakhs. Under the present circumstances, you feel that this amount is more than enough to cover all your health-related needs, however, one aspect that you have not considered here is inflation. A few years down the line, Rs 5 lakhs won’t hold the same value that it does today. Consequently, when the need arises, this amount might not be able to ease your financial burden and you might have to dip into your savings, defeating the purpose of buying insurance.
Not enough coverage: In this case, your insurance either doesn’t provide enough coverage or doesn’t provide coverage against the ailments or treatments you might need in the future. Let’s elucidate with the same example:
You opt for a comprehensive health insurance plan that provides significant coverage of Rs 20 lakhs against medical emergencies. You believe that any disease or illness can be covered with such a huge amount. However, due to a lack of awareness, at the time of buying the policy, you were not aware that it doesn’t cover critical illnesses like cancer. Now, in the unfortunate event of contracting a critical illness in the future, the large coverage amount of your insurance policy will be of no use at all. And, you will have to pay for it out of your own pocket.
It is important to be well-informed about insurance. Just having a large cover isn’t thebe-all and end-all. You can still be underinsured and vulnerable to a financial crisis. To avoid finding yourself in this situation, you should carefully go through the provided benefits and coverages before finalising your policy.
How do I avoid the risks of underinsurance?
#ThinkAhead and take these steps to avoid being underinsured:
Make a diligent assessment of your needs
When purchasing an insurance policy, you need to assess your needs systematically and only then make a purchasing decision. Remember to take factors such as inflation and plausible unforeseen expenses into account too.
Opt for an adequate sum insured
Always ensure that your sum insured is adequate as per your needs. You might have to pay a higher premium, but it’s worth it. Down the road, you should not be stuck bearing the entire brunt of a costly financial emergency.
Go through the exclusions and conditions thoroughly
To avoid being underinsured, don’t miss out on the details of your chosen plan, like its exclusions. You should be certain about what your insurance covers and what it doesn’t. There should be no unpleasant surprises in the future.
Seek professional help when in doubt
It is always advisable to rely on the expert knowledge of insurance companies rather than trusting unreliable sources blindly when it comes to picking the right insurance policy.
In all effectiveness, insurance exists to ensure that you and your loved ones are well covered in case of emergencies. Tata AIG provides a range of comprehensive insurance policies with a variety of helpful add-ons to suit your needs.
Related: How to claim health insurance
Health Insurance Factors
An unexpected illness or accident could make a dent in your bank accounts and make your financial plans go haywire. With ever-rising costs of medical care, making health insurance is important not only for yourself but for your loved ones as well. As everyone is different, so are their needs. Your health insurance should be decided upon after careful consideration of following factors:
Premium Payment Terms
Your financial ability to pay premium is an important factor while deciding the extent of health insurance cover that you will need. Not everyone can pay the premium for Rs 20 lakh cover, however, you can pay what you can afford. A good way to calculate that is by taking 2% of your yearly income – for example, if you earn Rs 6 lakh a year, you might be able to pay an amount of Rs 12,000 yearly which will give you a decent cover from today’s standard.
Annual Income Percentage
Annual income is directly proportionate to the health insurance cover. Your annual income is a considering factor by the insurance providers, while determining the maximum health insurance cover you are eligible for. Practically, you should have health insurance cover between 50% to 100% of your annual income. A simple but helpful formula is:
Health Insurance cover = 50% of Income + 100% of last 3 years’ expenses on health (hospitals)
Family Medical History
Family history is another factor that affects your health insurance cover. The insurer will look at the history of health problems of your family members in order to evaluate the risk of the insured contracting the same. Individuals falling under the high-risk category should get a comprehensive high cover health insurance policy.
Age of the Insured
Age is another important factor that will affect your health insurance coverage. Individuals who have bought health insurance policies while young avail a discount on premium. For example, if you start at age 25 you can buy health insurance worth Rs 5-10 lakh and then increase it by 10-15% every year. And individuals over 45 years of age would have to pay higher premium for health insurance coverage.
Type of Hospital
The health insurance cover is also affected by the grade of hospital where you choose to be hospitalized. The rate of same treatment differs in different hospitals. So, the amount of health insurance cover that is needed has to be determined by calculating the expenses that might incur from the hospital of your choice.
When you avail a health insurance policy mainly for the purpose of tax benefits, then you need not take a comprehensive health insurance cover. You can evaluate the amount of tax deduction you wish to avail through the policy and then purchase one that meets your requirement. The maximum limit for 80D deduction is Rs. 25, 000, and Rs. 30,000 for senior citizens.
Disclaimer: The parameters provided above are only indicative and it may vary from person to person and case to case.