The Dangers of Being Underinsured

In a world full of uncertainties, insurance is the best way to back you up and prevent personal loss. “It’s the peace of mind that you’re buying,” some people would say. However, a lot of people subject themselves to the dangers of being underinsured when cost becomes the biggest factor.

Many people focus on the current premium they pay and fail to see the long-term benefits insurance can bring. Instead of evaluating their actual needs, they opt for the least expensive plan they can get. A bargain sounds good, but the risk of being underinsured is not a price anyone should bear. As the saying goes – don’t be penny wise, pound foolish.

What are the chances of you getting involved in an accident or getting cancer? We can certainly hope that it will not happen to us, and with all our hearts, we will never wish this upon anyone. But life is often more fragile than we think. It could be seen as a gamble to some, but the probability of cheating death in life is ultimately zero.

What is being underinsured?

To be underinsured is when you don’t have insurance or when you have coverage but it’s insufficient for your needs.

When you’re underinsured, your coverage will be far from enough to reimburse the damages and losses in case such a risk should occur. You may need to spend your assets to pay for them. In some cases, it can make you a debtor and lead to possible personal bankruptcy.

Scenario of an Underinsured

Let’s say, your medical insurance covers up to RM100,000 whenever you’re admitted to hospital to receive medical treatment. However, the total medical bill, including all the treatments, drugs, ward, and other miscellaneous items, costs RM200,000. Hence, you have to pay the difference of RM100,000 on your own. In this case, you’re underinsured.

What Are the Risks of Being Underinsured?

It leads to many unthinkable consequences, and there are few major risks to take note.

  • Health Risk

Healthcare and treatment are one of the most expensive things you need to pay in your lifetime. Even if we’re living in a modern era, there are still among us who are reluctant to visit a doctor when we’re sick. The fear of receiving the medical bill paralyzes us and we would rather psyche ourselves up that “we’ll be just fine” and “it’s a small matter”. The consequences can be severe, particularly when preventable conditions or chronic diseases go undetected.

  • Financial Risk

As mentioned before, the consequence of not being adequately covered results in greater loss when something unexpected hits you. It could be devastating for you and your family if you’re not financially prepared – i.e. a lack of savings, emergency funds, passive income or other assets that could be liquidated to tide you through. Under such circumstances, your insurance would have been able to cover your losses – provided that your coverage is sufficient.

  • Loss of Property

Everything from houses to business can be insured. But they’re always neglected. What if an accident happens and your property is engulfed by a wildfire? Not only you have to bear the loss of everything; you still have to continue paying for your loan to the bank. 

How to Avoid Being Underinsured?

A few simple ways to help you get away from being uninsured, avoid personal property loss and preserve your wealth.

  • Reevaluate Your Insurance Policy

Remember that thick, wordy, and lengthy policy document? Never forget to read that. Advertisers and marketers tend to highlight the things you want to hear, i.e. all the greatest benefits and key selling points of their product. But let’s not forget, what’s more important are the nitty gritty, terms and conditions that lie in every line of the policy.

It is not enough to merely go through every page of the policy. Pay close attention to the sum assured, what’s included and excluded to ensure that you have sufficient coverage.

  • Never Settle for Less

In case the insurance is not what you’re looking for after reviewing the policy in details, but you’ve already paid the premium, exercise your consumer’s right and ask for a refund within the free-look period.  

  • Understand the Value of Quality Insurance

Choose one that can satisfy your needs and demands while taking your budget into account. Depending on your lifestyle, age and background, your premium price will vary even for the same coverage offered to another person.

  • Choose a Reliable Company and Agent

The insurance company and the agent you choose matters a lot. Never assume that every insurance company offers the same thing and choosing a plan that suits you is more than a “Eeny, meeny, miny, moe” process. Besides the agent, ask the people around you about the insurer to make sure it’s reliable.

If someone you know has a good experience with their insurance agent, ask them. A good agent with your financial interest at heart is definitely not your average Joe or product peddler. They can be hard to find but they exist. And once you’re referred to one, take this opportunity to work with them on your goals and clarify your needs and budget before deciding on the policy you need.

Be a smart consumer, be a fully covered policyholder.

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