How Risky Is Low Insurance

How Risky Is Low Insurance


Everyday, you will either hear or read opinions on how important it is to get insured early, right age to invest in life insurance, types of life insurance etc. However, have you given enough thought to how MUCH of life insurance is enough? Being adequately insured is as important as investing in the right type of insurance policy. In many cases, customers have a very short-term view to investing in insurance, which might be either tax saving or low premiums related. However, inadequate insurance is as risky as having no insurance at all as it results in an equal amount of hassle and trauma for your loved ones in case of your unfortunate demise.

Let’s take an example to showcase the insurance planning habits of a customer – Mr. XYZ, at the age of 30 earns Rs 5 lakh per annum and has a total outstanding loan of Rs 22 lakh (Rs.20 lakh for his home and Rs.2 lakh for his car). He has an existing insurance coverage of Rs 10 lakh and he feels his family would require at least 15 times of his current annual income in case of any unfortunate event.

 The following graphic illustrates the actual insurance requirement of Mr. XYZ as against existing perceived requirement of Rs. 75 lakh as sum assured. This graphic will even give you a sense of how to calculate your insurance requirement when you have an outstanding loan to account for.




 As it is visible from the above picture – Mr. XYZ is under insured and needs to buy a new insurance whose sum assured (SA) would be Rs 87 lakh.

Now let’s discuss the consequences of no insurance& low insurance:

 If you are not insured, your family doesn’t get a protection cover. This means that in case of an unfortunate incident, your family might become financially unstable, unless you have deposited surplus amount in bank FD or any other financial instrument. If you are the only earning member in the family, then it’s all the more important for you to get insured adequately.

The whole idea of investing in a life insurance policy is to be able to support your loved ones in their hour of need, incase of your untimely demise. An Inadequate insurance cover completely defeats the purpose of investing in an insurance policy. Before blindly agreeing to invest in something sold by your agent for the purpose of “tax savings” it’s important to step back and ask yourself “what am I investing in this insurance policy for? Protection from whom and for what?” This will help answer a few fundamental questions about the type of insurance you need and the insurance cover that you should opt for.




Insurance: A Guide

"Remember kids, I have life insurance" - Adam Savage

This is a guest article from Tatyana Levin

These days one must be financially savvy. Money is not easy to come by and should be managed carefully. With the availability of tools that make it easy to keep track of current events, the stock market, and even your own money, it would be almost a crime to not utilize these tools to make the best and most informed financial decisions. Unfortunately, the more there is, the more there is to keep track of. This applies both to tracking tools and money (the small curse within the comfort of having money to keep track of).

 The savvier ones of us dabble in investments, and the savviest make their living that way. The key is that they know what to invest in. Not magically, of course; investors do a significant amount of research to learn how to optimize their portfolios, but they have the understanding.

A grossly overlooked investment is insurance. This may be because is not typically referred to as an investment with the exception of whole life insurance that has a specific investment component within it. Webster’s defines the word “invest” as a commitment of money for a return and “insurance” as a guarantee. This makes insurance the safest type of investment, because your returns are guaranteed.  But returns are not always financial in the case of insurance. They can be, if there is an unforeseen accident, but the most certain return is the feeling of security.

Now there are many different types of insurance, and what you need depends on your current situation. Obviously you only need auto insurance, found using auto insurance leads if you have a car, and you only need renter’s insurance if you rent and have possessions that you would need insured. Insurance is for those who have something to lose. With an attachment to something, either emotional of physical (or dependence, not like physically being glued to your car), comes the fear that it will be damaged or ruined in some way. For example, if your house caught on fire, you would be devastated. What would add insult to injury is not having a way to recover from this horrible disaster.

 These types of examples are not unique to this article. That is the way that insurance is sold. As they say that clichés are clichés for a reason, insurance is promoted this way for a reason.  The foundation of the concept of insurance is uncertainty, and it is the same uncertainty that is conjured up when investing.

The main difference between insurance and investment is that not having insurance creates a feeling of uncertainty while investments by nature are uncertain. Therefore, investing in insurance creates security and is the only secure investment that exists (and is legal). Getting insurance should be one of the easier financial tasks if you apply all the resources available with technological advances like smart phones.

About the Author: This article was written by Tatyana Levin, a copywriter for InsuranceFiles.com