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Underinsured: Is your insurance coverage enough?

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Underinsured: Is your insurance coverage enough?
January 20, 2025

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Insurance is meant to protect you when the unexpected happens. What if your safety net is not wide enough or has a hole in context to your needs? Imagine this: you have bought a ₹1 crore life insurance policy, thinking you are fully covered. But by the time it may really be required, this amount might not be enough to support your family, especially when you factor in rising living costs, debts, and future responsibilities.

This brings us to the point of whether you have enough insurance coverage. Being underinsured can leave you vulnerable when you need security the most. So, how can you tell if your coverage is really enough?

The key to understanding whether you are underinsured lies in regularly assessing whether your coverage keeps pace with your life changes, medical needs, and financial commitments and goals.

5 Clear Signs You are Underinsured

Here are five clear signs that your insurance coverage may not be enough, putting you and your family at risk. It’s time to reassess and ensure you are fully protected.

1. Would your family would struggle financially without you

Life insurance is a safety net for your family, in case of an unfortunate event. The insurance payout would ensure that they are taken care of. It would cover their everyday expenses, any outstanding loans, future obligations like children’s education, and any unforeseen costs, etc.

If your sum assured is lower than what your family might need to cover these costs, it’s a clear sign you are underinsured. Even a big enough policy could fall short if you haven’t taken all your responsibilities into account. Consider this - If you take into account the size of home loan and car loan, a big amount like ₹1 crore policy may not really seem enough.

2. Medical costs keep rising

Medical care costs continue to rise quickly (much higher than general inflation). Even if your health insurance seemed adequate a few years ago, it may no longer cover the costs of hospital stays, surgeries, or long-term care. Medical inflation can easily outpace the sum assured in your health plan.

Even if a health insurance policy covers you, a critical illness claim-related to hospitalisation or disability-related costs can set you back. It can be a good idea to consider investing in a term plan with critical illness riders*. These riders would cover specific illness related costs. For instance, if you have invested in a term plan from HDFC Life, look at specific riders that cover major illnesses or even waiver of premium rider so that your life insurance policy does not lapse.

3. Insurance doesn’t reflect current financial situation or responsibilities

Situations and responsibilities in life change over time. When you first buy insurance, your financial situation and responsibilities may have been lower. As you grow in life, responsibilities tend to rise with income as your career progresses.This often translates to increased expenses and having to provide for living expenses of dependants.

This is why it is important to review your insurance coverage regularly, so it can keep up with your changing financial situation and responsibilities. For example, If you have a child consider a child plan that can ensure the financial security of your loved one, no matter the situation. Those closer to retirement should consider annuity or retirement plans that can help with a source of income post-retirement. ULIP plans can help those looking to beat inflation with accumulated savings to meet certain financial goals.

4. Premium was the deciding factor when buying

Choosing an insurance policy based on the premium is like choosing a car based on the mileage it would give. The idea of an insurance policy is to provide financial security that can protect your family after you are gone. Opting for the cheapest premium can mean you may compromise on getting coverage that matches your needs and situation. You might have chosen a policy based on affordability rather than evaluating the actual benefits it provides. When a real need arises, you might find that your insurance doesn't cover all the expenses it should. Buying insurance based on premium alone may end up functioning as a tick mark in your financial checklist which may turn out to be a rather ineffective one.

Why being underinsured is a serious risk

The idea of insurance is to be able to have a safety net for situations in life which are often out of control. This is why, under insurance can be a silent threat to your financial well-being. Yet, when it comes to insurance, the most common misconception is that having only term insurance is enough. Under insurance becomes especially dangerous in situations involving major life events like accidents, severe illnesses, or untimely deaths. This is why insurers offer multiple life insurance plans curated for various needs and situations today. This can ensure you have the right insurance in place so that your loved ones are always protected.

How to protect yourself from being underinsured

Protecting yourself from being underinsured involves regularly reviewing your coverage, choosing comprehensive plans, and seeking expert advice. These steps help ensure you are fully prepared for any unexpected life events.

1. Review your policy regularly

Life changes, and so should your insurance. Regularly reassess your coverage to make sure it aligns with your evolving needs — a bigger home, children, a growing career, or increased healthcare costs. A policy that worked well five years ago may no longer be adequate today.

2. Don’t compromise on coverage to save on premiums

While premium costs matter, the value of the coverage and the risks covered should be your top priority. A cheaper policy might seem attractive, but it could leave you exposed to significant risks. Choose a plan that balances affordability with comprehensive protection.

3. Consult an expert

If you are unsure whether your insurance is enough, it's always worth talking to an insurance expert. They can help you evaluate your coverage needs based on your financial situation, lifestyle, and future plans.

Final thoughts

The peace of mind that comes with insurance is only valuable if it’s truly sufficient to protect you and your family. Don’t wait for a crisis to realise that your coverage isn’t enough. Even a ₹1-2 crore policy might not be as much as you think when your liabilities and needs increase over time.

Regularly reviewing and adjusting your insurance ensures that you stay protected, no matter what life throws your way. Find the right cover that grows with your needs, so you never have to face an unexpected future unprepared.

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ARN: ED/01/25/20236

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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