The Unders and Overs of Insurance

Insurance is one of those things that most people need but resent having to pay for. When money is tight, it is often insurance premiums that get cut from the budget. With an increasing amount of insurance being bought online or over the phone without advice there is a real danger that more and more people will be either over-insured or under-insured.

The value of insurance is not just the ability to make a claim, it is also the peace of mind that comes from knowing that your financial risk has been passed on to a third party. The difficulty comes in determining the optimum level of insurance cover whereby the risk you retain is acceptable and the premiums are affordable.

Start by looking at ‘what if’ scenarios to assess the financial impact of an unexpected event on yourself and on others who are dependent on you, taking into account long term effects such as your ability to prepare for retirement. Unexpected events could include the loss of physical assets such as your house or car, loss of life, or a serious accident or illness leading to additional costs, disabilities or loss of income. With each scenario is it necessary to determine the amount of money required to maintain the current and future standard of living of both yourself and of those who are dependent on you at an acceptable level. Find the cost of cover for these amounts, and put priorities on the risks that are most important to you. Keep working with alternative options of cover until you arrive at a point where you are comfortable with the level of risk you are accepting and the cost of cover. It is best to work with an insurance broker to help with this analysis and find an affordable solution.