Why Can Lack Insurance Protection?

Why Can Lack Insurance Protection

Most Indonesians lack insurance protection. The term in the world of insurance is underinsure . Protection alias owned is not sufficient actual needs. The end, of course will be difficult. Great hope that insurance will eliminate the difficulty when the head of the family is not able to give a living, gone already.

Many examples. Evita Carolina (39) Bekasi residents with three children say paying life insurance premium of Rp 2.8 million per year. The sum insured is only Rp 50 million. "It is lacking, but there is no plan to add more," said the housewife who just gave birth to this third child. Nurul Pramudya (36) is more extreme. He only has an education insurance of Rp 10 million for his two children. In fact, since her husband died 9 years ago, he fought alone to support his two children. If there is a risk of death, both children will only receive the sum assured of Rp 10 million only. "In the past, the number has been big, but now it is very small," Nurul said, acknowledging the small amount of sum assured.

Meanwhile, Fitri Dharmayanti (40), a businesswoman in Bengkulu, said she and her husband have unit link insurance with Rp 500 million. It seems that the sum insured is huge. With a living cost of Rp 8 million per month, this sum assured can meet the needs of his family for five years. After five years the money will be exhausted while his son who is still attending primary school has not been able to meet the cost of his own life.

Why do most insurance customers not have sufficient protection to meet their needs? This happens because the customers themselves do not know how much protection is needed. Most people buy insurance based on the promotion of the insurance agent, not the awareness of sufficient protection needs. So, between the needs and the protection offered is not comparable.

In addition to lack of information from insurance agents, customers also do not have the ability to calculate how much protection needs. In fact, how easy enough lho.

How to calculate
There are several methods used to calculate insurance needs. The first way is to calculate based on human live value. This method determines the sum insured money based on how much income a family head has annualized. This income is multiplied by how long the fund may be needed by the heirs until the heirs can be independent. Usually, the benchmark used for heir time can be independent after he finishes college. The assumption, the child or heirs finished college can work and support themselves. This sum insured does not take into account the growth of funds if deposited in a bank or other investment instrument.

So for example a Budi family with a father, 35-year-old Budi, has an unemployed wife and a five-year-old child. Father's income of Rp 5 million per month. Then based on the method of human live value, the sum insured money required is Rp 5 million x 12 x 20 years = Rp 1.2 billion.

Why multiplied by 20 years? The 20 years is a time to be protected. Given that the child is currently 5 years old, in the next 20 years he will be 25 years old, is expected to have finished college and can finance himself so that no longer dependent of insurance money

So this family needs insurance money amounting to Rp 1.2 billion to protect the family's needs for 20 years.

The higher the sum insured, the higher the premium to be paid. If to get the sum assured of Rp 1.2 billion premium to be paid is expensive, this way can be replaced by taking into account expenditure, not income.

Supposing of the income of Rp 5 million is the cost of family needs of Rp 4 million, then the calculation becomes Rp 4 million x 12 x 20 years = Rp 960 million.

There is still a way to calculate how much money insurance money, the second way is income based value (IBV). In this way, it is necessary to calculate how much money should be invested in order to make money of Rp 4 million a month like the example above to meet the needs of the family. The funds should be invested in a secure investment instrument. Currently, investment instruments that are categorized as safe and yield higher than bank interest are Indonesian state bonds (ORI).

Currently, the ORI rate is at 7.3 percent, minus 20 percent of the tax so that net returns are gained 5.84 percent per year or 0.48 percent per month. Well, to get funds amounting to Rp 4 months as expenditure per month with an interest rate of 0.48 percent per month how much investment is needed?

Calculation method, Rp 4 million / 0.48 percent = Rp 840 million. So ideally this family has a risk-free investment fund of Rp 840 million to be able to meet expenditures of Rp 4 million per month. Where does this investment fund come from? These funds are earned from insurance money. So with the IBV method, this family needs a sum assured of Rp 840 million in order to generate funds of Rp 4 million per month if the breadwinner dies.

While the third way is called survival based value (SBV). In this way, it calculates how much debt should be protected and how much income should be protected until the person left (called survival) can work. This method assumes the abandoned person will work and will work after the abandonment of the head of the family.

If using this method, there are some things to watch out for. The greater the money to be paid, the greater the insurance money required. In addition, the higher the education and the more experience a partner has, assuming the sooner he gets the job. Another factor to be taken into account is how much of the emergency funds the family has.

For example the Danu family (38). Danu earns Rp 10 million per month. The wife, Ani is 30 years old and only two years do not work. Previous wife works with a salary of Rp 4 million per month. Budi's family bought the house in installments. The house is worth Rp 400 million and the remaining debt of them Rp 300 million. Monthly installments amounting to Rp 1.5 million. Total family expenditure is Rp 8 million per month. The Danu family has an emergency fund of Rp 50 million. How much protection should the family have?

Taking into account an emergency fund of Rp 50 million, with an expenditure of Rp 8 million means the funds can be used to cover the cost of daily living for 6 months.

In addition, taking into account work experience and wife expertise, it is assumed he will be able to find another job soon after her husband dies. If the last income is Rp 4 million, it is estimated that the wife's earnings if working again there is a 10 percent increase, meaning that the income potential of this family is Rp 4.4 million per month.

When binding on a credit agreement, the creditor is usually insured for the loan. So if you die, the rest of the mortgage bill will be repaid by the sum insured from the credit insurance. So the expenditure of Rp 1.5 million to pay the mortgage repayment no longer exists. The cost of living fell from Rp 8 million - Rp 1.5 million to Rp 6.5 million. With a wife income of Rp 4.4 million and expenses of Rp 6.5 million, this family still lacks income of Rp 2.1 million per month. So Rp 2.1 x 12 x 20 years = Rp 504 million. Well, Rp 504 million is what is a shortage that must be covered from insurance money. With a sum assured of Rp 504 million plus a wife working again, this family can still meet their daily needs if the main breadwinner dies.

The results of these methods are different. Choose what suits your financial situation. Do not worry first if the calculation results say you need the sum insured up to billions of dollars. Look for the type of insurance that suits the pocket.

To get the sum assured of Rp 1 billion, if you are young around the age of 30s and healthy, it costs only about Rp 3 million per year if taking term insurance or term life. Of course premium money will be more expensive if age increases and health is disrupted.

Therefore, do not delay buying protection, for the sake of beloved family.  

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