The moment you think about insurance – many questions pop into your mind. The term insurance is rather a mind-boggling term. You tend to get confused with lot many things when it comes to covering insurance for any of your property – beit a vehicle, house, shop or even your bar insurance.
You will get to learn various new things which are associated with insurance of anything. As far as insurance is covered, all the aspects have different variations. A vehicle has a different set of rules for its insurance policy; liquor liability insurance has another different set of rules and policy;whereas, your house can cover another variation in the insurance.Similarly, life insurance has tobe differently covered.
Now the question here arises is that how can you make out that whether you are overinsured or underinsured. First, let us understand the meaning of both the terms. Let’s tackle over insurance first. In the simplest and raw form, over insurance simply means that the risk factor is yet not realized.
This again means that you have paid more for the risk to be covered so that you are in the safe zone. Now what exactly this means is that for instance that if anyone does not die or fall sick or fall prey to any circumstances, then the risk being covered here hasn’t been realized. So over insurance does not happen with the majority. Reason being that it is too expensive for a common man to pay more than the required amount.
Likewise, when it comes to liquor liability insurance or income protection or your medical insurance, you cannot claim more than what is required. Thus you can say that there is a downside of over-insurance:
- You end up paying more than what is required to pay actually. This is useless.
- As result of budget constraint, other areas of property can be underinsured. This can create a loss for you because you have paid more than the required amount in few areas.
- You may not be able to claim that thing that you have over-insured.
- You also cannot claim more than the loss. Hence it is not worthwhile paying more than required.
Now the other side of the coin – Under-Insured –very much unlike over insurance, under insurance can result in I many hardships and can be a challenging task.
Let’s say for instance, in case of over-insurance you end up paying more;whereas, for under insurance you may end up paying not too enough or probably nothing.This depends upon the area of insurance or the situation. What you must keep in mind is that whatever be the situation, inflation might reduce the rate and value of your death benefit.
Let us take a look at some points that leave people confused while they want to get insurance done:
- Complex and detailed policies
- Lack of planning for term insurance
- Lack of understanding of insurance
- Changes in life stages
- Changes in financial conditions
It is very difficult to predict that what will happen in future; thus, it is better to review your insurance policy time and again.