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Are you adequately insured?

By Parag Raja
February 19, 2015 08:49 IST
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This question remains unanswered most of the time due to lack of knowledge or guidance. No more!

Illustration: Dominic Xavier/

Insurance is the best financial tool to protect your loved ones financially in case you suffer any disability or untimely death. Though you may have several insurance policies, you may not be adequately covered.

Indeed, a majority of Indians are still either uninsured or underinsured.

According to a report by Life Insurance Council, the insurance penetration in India -- as a percentage of premium to GDP -- was a mere 3.2 per cent in FY13 while life insurance density -- the ratio of premium to population or premium per capita -- was just Rs 2,687 ($43). This indicates the average size of the premiums paid.

In the event of an unfortunate death, a low life cover won’t be of much help, leaving your family financially unsecure. However, there is no formula to decide the amount of life insurance you need -- it must be determined by your specific needs, present situation and current assets and liabilities.

Since an individual is exposed to various risks such as hospitalisation, accidental disability, critical illness and loss of income, besides death, it is necessary to look beyond a pure life insurance cover.

Following a comprehensive need-analysis, one needs to draw up or re-evaluate a realistic protection cover. You must assess your life insurance cover annually or at least every time there is a change in your life events or financial situation. For instance:

 Change in marital status -- marriage or divorce

 Birth and death in the family that adds to or reduces the number of your financial dependents

 A move to a bigger house or a home loan to purchase a house

 A change in job which results in higher income

 When your children become financially independent

Apart from this, certain signs that convey that you need to be more protected include:

Increasing number of accidents and natural disasters

We live in a world of uncertainties. Mishaps, natural tragedies and illnesses may strike without warning. We may not be able to escape or control their occurrence but we can prepare ourselves to handle the outcome.

If you are only provider for your dependents, ensuring the financial security of your family, in unexpected conditions, should be your top priority. For this purpose, life insurance policies have plans that provide enhanced death cover in the event of accidental death.

Increasing loans and debts

To maintain a lifestyle many of us take loans, sometimes far in excess of our income. Besides providing income to cover everyday living expenses, your family would need insurance to cover debts like the home loan so they wouldn’t have to sell the house to stay solvent. A life insurance policy can help pay off a home loan so that your heir can continue to live in the home or eliminate the immediate need to sell it.

Rising inflation

Rising inflation is also a cause of concern as the value of money depreciates over time. One should consider the inflation-adjusted factor before choosing an insurance policy since your family's expenses will keep rising with inflation. Buy an insurance cover that is large enough to generate inflation-adjusted withdrawals till your dependents become self-sufficient. When deciding the life cover, also take into account future obligations such as your children's education and marriage.

Buy insurance for the right cause and get the right coverage. Adequate life insurance covers you across all bases, especially the well-being of your family.

Parag Raja is Executive Vice President and Head of Agency, Max Life Insurance

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Parag Raja