Under Insure or Over Insure the Pros and Cons

In many cases it is unwise to under insure and your insurance company is likely to penalise you. To over insure is a waste of your money and often time.
The answer is to keep a watchful eye on your insurance policies and the insured levels that you want to cover.

Under Insuring Pros and Cons

  • Insurance should operate on principles of up most good faith. (Uber fides).
  • If you under insure then you will not get a claim paid out or certainly not paid in full.
  • Under insuring means you are under paying lower premiums to the disadvantage of the insurer. If discovered the insurer may repudiate the contract.
  • Even if you are happy to receive only a partial insurance payout you are better to negotiate a large excess on the policy.
  • If your household insurance is too low you may not be able to rebuild in the case of fire or recoup enough to replace lost assets.
  • A form of under insurance is not declaring the risks eg doing dangerous sports on holiday with only normal travel insurance. This can leave you seriously out of pocket if the insurer fails to cover a claim.

Over Insuring Pros and Cons

  • Duplicating cover will duplicate your costs but you should only be able to claim once. If you crash your car into your garage door you can claim on the car or household insurance but not both.
  • Life insurance may be crucial when you have a young family but your needs change over time and you may have far too much cover once you retire, pay off your mortgage and the family leave home.
  • You should not be aiming to make a profit out of insurance so over valuing your car or home contents valuation will increase your premiums but you should only be paid true value in the event of a claim.
  • In some instances it may be better to self-insure the risk. This would include small value policies where the admin is too much effort or where the likely hood and size of a claim would not be a disaster.
  • Extended warranty on electrical goods can be a form of over insurance. You have many rights and guarantees under law and making claims on these ‘heavily sold’ policies can be quite fraught.