Insurance provides a financial safety net as well as a peace of mind for us and our family. The future is always uncertain and we can never know what happens tomorrow.
However, is it possible that you are over insured?
It is possible to be over-insured. An example would be an individual earning a monthly income of RM3,000 and has purchased life insurance that pays RM1,800,000 to substitute the loss of income.
This shows us that the person is over insured because the amount covered is absurdly high and the premium would reflect similarly.
The coverage of a life insurance should always scale accordingly to your level of income as you progress in your life. There is no need to commit heavily into a high pay-out life insurance as it may be unsustainable in terms of premium.
Under Insured How?
You’ve guessed it right. Under insured simply means having coverage be it medical or life policy that simply isn’t enough to cover your lifestyle or your family in the event of your illness or passing. This is often the case due to overlooked and outdated policies which did not scale accordingly to your level of income and your lifestyle as you age.
It could also be a case of newer policy providing better coverage at a better premium.
It is difficult to predict what will happen in the future, hence the best way to prevent yourself from being underinsured is that you review your insurance policy every few years to make sure it provides you the adequate level of protection.
Why do people get over-insured or under-insured?
Lack of Planning
The general view of insurance is that it’s a one and done thing whereby you buy and forget about it until you need it. This is a misconception – planning your insurance policy as your progress in life stages will ensure you have the best coverage for your given lifestyle.
There are many insurances that have hybrid offerings of medical, life, mortgage, investment and many more. If you were to purchase something you do not understand, then you will have a higher chance of being underinsured. Having an insurance agent that clearly understands your needs and offers only the coverage that you may need is sometimes more important than the insurance itself.