Why Does Having Adequate Insurance Cover Matters More Than You Think?

Introduction to adequate insurance cover

 

When buying an insurance policy, the coverage amount is one of the major considerations to be assessed. The coverage amount usually represents the maximum financial assistance or compensation that you would get in the case of a loss. If the coverage amount is not adequate, your financial losses would not be covered optimally and you might incur out-of-pocket expenses. Such expenses might put a financial strain on you and are best avoided.

That is why, it becomes important to choose an adequate insurance cover with your insurance policies so that you get the desired financial assistance.

 

Examples of adequate life insurance coverage:

 

To understand how much coverage would be adequate, let’s consider an example. Say, you have a home loan of ₹50 lakhs. Plus, your family incurs an average of ₹6 lakhs as annual household expenses. In this instance, if you were not around, your family would need a corpus which would pay off your loan and also give an annual income of ₹6 lakhs so that your family can meet its expenses. So, if you buy a life insurance policy of, say, ₹2 crores, in the case of your premature demise, the policy would cover the existing loan that you have. Plus, if the remaining ₹1.5 crores is invested in a risk-free avenue paying 6% annual interest (assumed), your family would get an annual income of ₹9 lakhs which would be more than sufficient to meet their financial needs.

 

Does your department/ business have adequate insurance cover?

 

If you want to check if your department or business has adequate insurance coverage, you can assess whether the insurance cover provides compensation which would be sufficient to cover the losses or not. To do so, first, you can assess the possible losses that you might incur and the financial loss suffered due to such losses.

Once you do, compare the financial loss against the insurance cover that you have. If the insurance cover is optimal to cover the expected financial losses, your business or department would have adequate insurance coverage. If not, you might want to increase your coverage for better financial security.

Also, when assessing the adequacy of the insurance cover, consider inflation. Inflation tends to increase the quantum of loss. So, quantify the loss per the prevailing rates and then see if the policy is sufficient to cover the inflated losses.

 

Which type of insurance cover is suitable for you?

 

The type of insurance cover suitable for you depends on your personal needs and requirements. Here’s how –

• One of the type of life insurance – A term insurance policy covers the financial risks associated with premature demise. If you are the breadwinner of your family or an individual on whom your family depends financially, a term insurance policy would make sense. It would cover the financial loss suffered in your absence and give your family financial security.
• Similarly, a health insurance policy covers the costs incurred in a medical emergency. Since illnesses are becoming common and injuries can arise anytime, having a health insurance policy is suitable to cover the expensive medical costs.
• If you have a vehicle, a motor insurance policy on the vehicle would be compulsory under the Motor Vehicles Act of 19881. So, a motor insurance policy would be recommended.
• If you are going on a trip and you want to protect against possible financial losses, you can choose travel insurance So, assess your coverage needs and then make a choice.

 

Conclusion

 

Insurance plans provide financial protection and can help you tide over unexpected financial losses. However, when buying the policy, make sure that you choose adequate coverage for optimal financial protection. If the coverage is low, you might incur a financial strain as the incurred loss would not be fully covered by the insurance policy.

There are online insurance calculators that help you find the right insurance coverage for many policies. You can use the said calculators and choose an optimal coverage. For insuring your assets, you can choose a coverage that matches their value so that the loss is duly compensated. So, understand your coverage needs and buy the right insurance policy.

 

FAQs

 

1. Can I increase or decrease the insurance coverage on renewal?

Altering the coverage amount on renewals is possible under some types of insurance plans like health insurance. However, life insurance plans might not allow increasing or decreasing the sum assured.

So, check the plan’s terms and conditions about increasing or decreasing the sum assured on renewals.

2. Is it possible to buy multiple insurance plans?

Buying multiple plans is possible for some types of insurance plans. For instance, you can buy multiple life and health insurance plans. So, check which types of insurance plans allow multiple policy purchases.

3. Does the premium depend on the insurance coverage chosen?

The premium is directly proportional to the amount of insurance coverage chosen. This means that if the insurance coverage is high, the premium would be high and vice-versa.

 

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