ET Wealth, Why low insurance is more dangerous than no insurance

Monday, March 26, 2012

Yateesh Srivastava, Chief Marketing Officer, Aegon Religare Life Insurance

Buying a policy doesn't translate into adequate cover. It could, in fact, lull you into a false sense of security. 

Life insurance is among favorite saving avenues for Indian Investors. Yet, India is grossly under-insurance. This is because insurance buyers prefer policies that have a larger investment component and minimal risk coverage. The average life insurance policy offers a cover of a little over Rs1 lakh.

This amount is grossly inadequate. One needs to have enough insurance so that in case of one's untimely death, the family gets a sum large enough to pay off liabilities and generate an income to live comfortably. Unfortunately, many Indians believe that buying an insurance policy is Synonymous with having adequate cover. However, under-insurance is even more dangerousthanhaving no insurance. This is because the Insured personis lulledinto a false sense of security.

How much insurance does one actually require? Though there is no hard and fast rule on this, you can carry out a simple calculation (see how much cover)to get a rough idea about your insurance needs.

In the example used in the table, the person earns well,but is not adequately insured. In case of his untimely death, the family will be in a financial mess, with outstanding loans of RS31 lack. His Existing insurance of Rs10 Lack will hardly suffice. 

A term plan canfill the gap between the insurance one has and the cover one needs. Of late, we have seen a lot of action in pure protection plans. In its simplest form, a term plan is a contract promises to pay a fixed sum to the nominee if the insured person dies. Since there is no survival benefits, the cost of cover is substantially low compared to the other forms of insurance. 

The advent of online term plans has made it easier for people to buy insurance. All it takes is 20-25 minutes0f filling up online form to secure your family's financial future. You can also add riders like a cover for critical Illnesses and accidental death.

Unfortunately, most people are in the same boat as the hypotheticalexample used above. Make sureyou and your family doesn’t end up in a similar situation.


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