Questionnaire: Under or Overinsured?
Insurance can be a tricky concept to get right. You don’t want to pay too much in premiums or have cover you don’t actually need, but you don’t want to go for cheap cover that will leave you disappointed and out of pocket when you need it most. Answer our insurance questionnaire to find out if you have a tendency to underinsure or overinsure.
1. It’s time to renew your car insurance. When asked about the market value of your vehicle, what do you enter?
(a) A couple of thousand pounds more than you paid for the car, just to be on the safe side if you have to make a claim.
(b) A smaller amount than the car is actually worth, to help you lower your premiums.
(c) The market value of the car, which you researched online.
2. You are about to sign up to a home contents insurance policy. When you complete the application it asks you to provide an estimate of the value of your possessions. Do you:
(a) Take a guess as to what your valuables might be worth.
(b) Go for the cheapest option you can get away with on the quote. You can always claim for higher amount if you have to, right?
(c) Make a list of your belongings, and add up their value before calculating the right amount to insure for. You also include ‘single item’ insurance for large expensive belongings such as computers and flat-screen TVs.
3. You have held a mortgage payment protection insurance policy for the last five years. Each year, when the company contacts you about your policy you:
(a) Give your salary a small 'bump-up', so that if you get made redundant you can enjoy a better standard of living.
(b) Do nothing, the policy is still running, so it’s not a concern.
(c) Adjust your policy to account for salary increases, cost of living and other variables that might have gone up.
4. You have a life insurance policy in place, which would pay out a lump sum to your family if you died. When you think about the lump sum you feel that:
(a) Your family would be better off if you died and the policy paid out.
(b) Your family would struggle to cope if they had to rely on the policy instead of your salary.
(c) Your family would be able to cope financially without you if they had to.
5. Finally, what is your overall attitude to insurance?
(a) You seem to spend most of your money on insurance, and it leaves you without enough money to pay for everything else.
(b) You try to avoid paying insurance whenever you can, and you always try to get the cheapest cover possible, because chances are you’ll never need it.
(c) Insurance is an unavoidable part of life. You try to make sure that you cover all the areas that you think need attention, and you are realistic about the benefits and the drawbacks of insurance policies.
How did you Answer?
If you answered most of the questions ‘a’, then you have a tendency to overinsure yourself or your possessions. This could be because you are cautious in nature, and like to make sure that you are well covered in case the worst should happen. On the other hand, it could be because you think that if you have to make a claim on your insurance, you should try and get as much money from your insurer as you can.
You should bear in mind, however, that insurance companies treat customers who are overinsured just as unfavourably as they do those who are underinsured. If you insure your car for a higher value than it is worth, the insurance company will check, and they will look less favourably on your claim if they feel you have been dishonest with them. You could even have your claim rejected for submitting false information.
You have a tendency to underinsure, or to not insure at all. This may be because you cannot afford higher premiums, or you have a poor insurance record or cannot get the best quality insurance policies out there. You should realise that underinsurance is a false economy if you have to make a claim.
Take home insurance as an example. According to insurance company MORE THAN, the average family needs home contents insurance to the value of around £40,000. If you insure your contents for £20,000 and then submit a claim for £40,000, the insurer will ignore half of your claim, and they could even refuse to pay out to the amount you are ensured for. If you value the things around you, make sure that you have insurance in place that puts a fair value on them also.
If you mostly answered ‘c’, then you have a good understanding of how insurance works, and you are careful to correctly value the things you take out insurance policies to cover.
Be sure to remember to keep your insurance policies up to date, and taking account of your changing circumstances, such as increasing car insurance and home contents cover when you move house, and doing the necessary research into the value of your home and property.