How to know if you are over or under insured
Submitted by: Beverley Bradley- Duann Cronje, financial planner at Fiscal Private Client Services
Times are tough and we’re all feeling the pinch so now is the time to take stock of what you’re paying for when it comes to risk insurance.
What does it mean to be over insured?
If you are over insured, it means the amount of your insurance is high relative to your needs. It can also mean your insurance is too high based on allowable regulations by insurance companies.
What are the consequences of being under insured?
If you are underinsured, you are not covered to the full extent available to you. It also means you are not covering all possible risks that could potentially be life changing. This has a knock on effect and can have a disastrous financial impact on you and your family who will have to find finances in tough times.
Your next step
It is a good idea to review your risk cover policy, and make sure you are insured for your most up to date needs. If we take income protection as an example, you may well be over insured if you have income protection insured through your employer as well as in your personal capacity. This means you could be paying for a ‘benefit’ that you might not receive. Again, the opposite is true, you will be underinsured if you have not updated your income protection to protect your most recent income, or even the new salary increase you may have received.
Leaving an inheritance for your family
Life insurance is another good example, where it can be used as a tool for Estate planning, to settle all debt at the time of passing. If your life cover amount is too low to pay the debt in your estate, you will be underinsured, and the executor will have to look at selling your other assets to pay your debts. If you would only like to settle your debts at death, without considering any inheritance or bequests, and your insured life cover amount is higher than your debts, you are over insured for that need.
No one likes paying for insurance only to find out it was not enough – or worse - paying for something you are not going to get. Working with a Certified Financial Planner and reviewing your cover (at least annually) will go a long way to ensuring you are not over or underinsured for what life may throw at you.
