Being the sole earner of the family, a person has to look up to many expenses like rent, educational fees, bills, etc. and if anything happens to the sole earner who will pay for all these expenses, and how the family will be in a situation of financial stability for the future.
That is where the role of life insurance policy comes into place.
The cover on the life insurance policy will help the family in such a situation. But unless the insurance cover is not of an adequate amount, there is no use for it. It is equal to not having a life insurance policy only.
Remaining under-insured is not good
An insurance cover is meant to help in a situation, of financial losses but being underinsured won’t serve this purpose.
For instance, consider a person who is the only earning member in the family of four, is having a life insurance policy dies due to unforeseen circumstances. The insurance cover that the family got after his/her demise is Rs 10 lakh. Now, is the minimal amount of Rs 10 lakh enough to pay for the regular expenses, education, and higher education of children, paying off any debt.
The simple answer to this is no.
The inflation rate will not even help the family sustain this amount for the next 5 years.
If the same person had been covered under an insurance plan with a cover of Rs 1 crore would have been better for the family. The amount would have been enough to pay off all the expenses and look after any heavy expenditure of the future.
Why are people underinsured?
The reason for people remaining underinsured is simply a lack of awareness. Many people do not buy life insurance considering it as an unnecessary expense. Even if a few take up life insurance plans, it is not of the right coverage amount. The insurance coverage amount helps the dependents in case of financial needs.
Many people also rely on the life insurance cover provided by employers. But this insurance cover is not sufficient.
What should an underinsured person do?
Firstly, accept the fact of being underinsured. After this, it is necessary to determine the coverage that is needed by oneself.
The factors to be considered to reach the right amount are:
• Loan repayments to be made
• Regular expenses that are made
• Future huge expenditures that can be made (purchase of a new house, higher education of children, etc.)
When subtracted with the existing investments and savings, the totals of these factors give a fair idea of the coverage required by the policy.
The requirements differ from person to person; thus, it is good to understand the needs of oneself to reach a proper amount and not buy it based on the amount that some other person has taken.
Inputs from Pepper Content