Many of us take out insurance in order to gain peace of mind that if the worst should happen we will be financially compensated. However, there is a common misconception that the more you pay for your insurance the better cover you receive. This isn’t actually the case; people pay for additional extras, or levels of cover, that they simply do not need, resulting in them becoming often quite significantly over-insured.
Car insurance is a widely held type of insurance policy, and is a legal requirement in many countries. The majority of insurance providers offer a large number of different add-ons that you can take out in addition to your basic policy. Some of these add-ons can be beneficial, but think carefully if you really need an add-on before you apply it to your policy. You may, for example, be offered breakdown cover. This might seem like a useful extra, but if you shop around you might find breakdown cover from a dedicated provider of roadside assistance at a cheaper price. Another common add-on with regard to motor insurance is cover for lost keys. Again, this may seem like a useful addition initially, but calculate how much you are likely to pay for lost key coverage throughout the term of the policy, and how much it would cost to replace lost keys on a couple of occasions. You may well find that this type of coverage is a luxury you can do without, especially if you are on a tight budget.
If your car is over five years old then you may well be over-insured. Fully comprehensive cover will cover the repair or replacement of your vehicle if you are involved in a collision, but you may find that the monthly premiums soon amount to more than your car’s worth.
Whether you own or rent your property it is advisable that you take out insurance. A buildings insurance policy will cover the structure of your property, and is often required by your lender if you have a mortgage on your home. Buildings insurance is not necessary if you rent as it is the responsibility of the landlord. Contents insurance, on the other hand, should be taken out by both renters and property owners alike as, as the name suggests, it covers the entire contents of your property. This type of policy will pay out if your personal possessions, including furniture, electronic items, and jewellery, are stolen or destroyed by fire or flooding. However, do not make the mistake of paying for far more insurance than you actually need. Buildings insurance should cover the cost of rebuilding your property, and not its current market value. Similarly, contents insurance should cover the cost of replacing the contents of your property so it is important to calculate accurately the worth of your combined items and to take out cover accordingly; paying more for cover that you simply do not need is an unnecessary expense.
Life insurance is another type of insurance policy that many people simply do not need. The purpose of life insurance is not to leave a financial windfall to your loved ones to ease their grief, but to provide financial assistance to your dependents upon your death, and to pay for any outstanding debts and funeral expenses. If you are single then the only type of life insurance policy you may wish to take out is one that covers your funeral expenses. A policy that pays out thousands when you are gone could cost you a substantial sum over the course of your lifetime, and you would simply not be around to reap the benefits. The money you spent on life insurance premiums could have been better spent on something else.
Researchers have found that many people have far more health insurance cover than they actually need. Some plans offer unlimited visitors to doctors, and generous benefits for prescription drugs; these plans obviously carry a high premium. If you are young and healthy then this type of plan would be an unnecessary expense, as would maternity cover if you are unlikely to become pregnant; maternity cover boosts average health care premiums by up to sixty percent!
A recent, and pertinent, example of individuals being over-insured and spending money on policies that they simply do not need is payment protection insurance, which was offered by the majority of lenders to consumers when taking out loans and credit cards. The courts found that many of these policies were mis-sold, and as a result financial institutions have had to pay back millions of pounds to their customers in compensation.
Insurers prey on our fear of the unknown, and may use this fear to their advantage by promoting insurance policies, or levels of cover, that we simply do not need. Before you take out a policy ask yourself what the likelihood is of the event in question transpiring, and whether the level of cover on offer far exceeds your needs. By doing this you can keep your premiums to a minimum, but still feel safe in the knowledge that if the worst should happen you will be financially compensated. Make sure that you keep add-ons to a minimum, and check that the current levels of cover you have in place are still necessary. Our circumstances change over time, and cover that we found useful a year or so ago, many not be relevant to our current situation.