While there never seems to be any end to product features and regulation related discussions when it comes to the insurance business, one aspect that gets far less airtime than it deserves is that of insurance itself; not in terms of how many people own it nor penetration percentage; but a much more basic measure — ‘The quantum of insurance cover that people ought to have versus what they have’.
Income-insurance cover paradox
Using data from across 80,000 BigDecisions.com users who have used our life insurance calculator as a basis for this study, we’ve found that almost 80% of them have little or no coverage when compared against what they really need to have.
What the data additionally reveals is that higher earners, who can afford the premiums are less adequately covered. The notion that once you’re well off, you do a better job of protecting your assets doesn’t seem to hold with levels of under-insurance rising with income rather than falling.
At the very least you must have enough to cover all your loans – this is the bare minimum and not covering these is very risky especially if it’s a single income household. The next level which is recommended is to have enough to cover your family’s expenses and key goals like children’s education needs. Often times, just because there’s been a bad experience in the past especially with investment products is not a good enough reason to shun the category. Risk cover or pure life insurance is an absolute must and there’s no good excuse for not having it.
Using healthcare treatment costs from Paramount Healthcare as an input to our health tool, we analyzed data of 36,000 users spread across eight cities and broken up into different age groups starting at 18 going up to 55 plus over the last 12 months. The health findings are even starker than those of life insurance.
We believe that under-insurance in the health insurance business seems to be a much bigger problem with a large chunk of people either have next to nothing or believe their corporate cover is adequate whereas it’s far from. Most groups in our study have less than 20% of what they need. The problem gets amplified in the age group of 45 plus given that their healthcare needs and therefore costs are likely to shoot up sharply in the years to come and there’s the very real possibility that the little that they do have is company provided and will likely, cease to exist on retirement.
Thoughts for consumers
Instead of treating the existence of health insurance as a yes or no answer, ask yourself if your employer provided cover is anywhere near enough to cover treatment costs. Assuming that you’d like to ensure superior quality medical care for your family, the answer of what constitutes ‘enough’ might surprise you but it’s not worth finding out at the hospital billing desk
Bad experience(s) in the past often around the claims process is no reason not to get it right. Ask yourself what caused the experience – often it’s because you’d chosen to buy the cheapest plan available (or as advised by an advisor) that had far too many exclusions or sub limits. Or it was a hospital issue or a combination of both or perhaps a different issue. Fair to say that all things considered, things have only become more expensive. As harsh as it sounds, the sensible thing to do is look harder this time and buy a more ‘comprehensive’ product without necessarily looking only for the cheapest product.
Don’t do yourself disservice by looking for a return on your insurance premiums – you don’t ask for a refund of your car insurance if you didn’t have an accident in the course of the year right? It’s time to re-focus on the essentials. After all, for how long will we remain a country where we pay more to insure our cars than our lives?
The author is Manish Shah, co-founder and CEO, BigDecisions.com – a News Corp entity