Being underinsured is no better than being uninsured. Here we tell you why you need to avoid it
Insurance penetration in India is relatively low compared to other countries around the world. Despite being among the most populous countries in the world, India had insurance penetration of 3.49% in 2016-17, according to the Economic Survey 2018. Though this figure is an improvement over the 2.71% that was observed in 2001, it is still lesser than emerging economies in Asia such as Malaysia, which is at 4.77%.
If this wasn't enough, a study from a leading health insurance provider in India, done in late 2016, showed that 51% of health insurance policyholders have policies with low sum insured that won't be enough to cover all medical expenditures in case of an emergency.
What is Underinsurance?
An insurance policy requires the insured to pay a certain amount called ‘premium’, on a monthly, quarterly or yearly basis for them to continue enjoying the policy coverage. In order to lower the premium amount, many policyholders opt for low sum insured. The sum insured is the maximum liability that will be incurred by the company in the event of a claim.
Let us take health insurance for example. If a person has a health insurance cover of just ₹5 lakh, and he gets hospitalised and the medical expenses come up to ₹7 lakh. Then, the insurance company will only cover expenses to a maximum of ₹5 lakh, the insured will still have to pay ₹2 lakh from his own pocket. This situation is called underinsurance.
Risks of Being Underinsured
There are many risks an individual is exposed to, in the event of being underinsured. Insurance protects you from many eventualities that can spell doom for your financial wellbeing. Case in point can be of business insurance. In a business, even a single incident can be devastating if the business is underinsured.
It may happen that the sum assured Is not enough and the entire business is not able to absorb the loss and return its operations to normalcy. This can also lead to the business shutting down because of insurmountable losses.
Why Take the Risk?
There are many factors associated with the answer to this question. The biggest factor of all is ignorance. It is unfortunate that many people are not aware of the financial consequences that a tragedy can have in their lives if they don’t have insurance coverage or are underinsured. For example, vehicle insurance is only purchased to meet compliance requirements, and not for the benefit it offers. Fire insurance is only bought for commercial establishments and not even considered for homes.
More information needs to be disseminated to make people aware about the benefits that various insurance products can bring into their lives. This will help them make informed decisions and buy coverage which meets their requirement, and they don’t end up being underinsured.
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