There is no denying that we all need insurance coverage for different reasons. But does it mean the more policies you sign up for, and the higher the coverage, the better off you are?
Well, not really. If this is what you’re doing currently, you may be setting yourself up for a financial disaster. Spending more than you need to for the protection is not always for the best.
The fact is, different people need different levels of coverage. Being over-insured can drain your cash flow. It may also lead to various complications later on when you need to make a claim.
But how do you know that you are over-insured? Here are some signs that point to over-insurance and what you can do to fix the situation:
When your insurance coverage overlaps
This means having a number of insurance policies that pretty much cover the same thing.
For example, when you have a personal health insurance policy and also an employment insurance policy.
Having a personal health insurance on top of the employee health insurance makes sense when one of them has low coverage (lower than you need). Then, having another plan will be able to cover the differences in claims if the need arises.
However, if the policy provided by the employer is adequate, having a separate policy can push your cost higher. Instead of cancelling your personal health insurance, you can lower your coverage to lower the cost of premium.
Stop and reflect first. Are the choices you make good in the long run? Be sure to plan this out accordingly, and adjust where necessary.
High insurance premium eating into your cash flow
The general rule for coverage is, at least 10 times of your annual income. It should be enough to cover the family expenses for the next 10 years.
How much coverage you need really depends on the number of dependents and also debt commitments you currently hold.
If your net worth is higher today, then it’s probably time to re-think your life insurance coverage.
Plan out the amount your family would need to get back on their feet financially in the event that you are unable to provide an income anymore.
When your coverage is too high
Insurance is something that you pay for… just in case. Just in case you fall sick, or just in case you get into an accident.
But how do insurers calculate your premium?
They use a method called underwriting, where they consider all your risks. If you are a high risk individual – a smoker or holding a high risk job – your premium will naturally be higher, because the chances of you making a claim is higher.
When you are deciding on your coverage, you should also do a very basic underwriting to help you decide. Do you have family history of hereditary illnesses, are you working in a high risk job, do you smoke and drink frequently?
Of course, these are just questions to gauge how high your risk is. We could never tell whether something unfortunate is going to happen to us.
Yes, its better to be safe than sorry for things like these. But you’re better off tweaking your coverage so that it’s adequate and suits your lifestyle rather than paying premiums you can’t afford. Take a good look at your coverage and see if you can get lower your premiums or even get better options..
For example, if you travel frequently, get a travel credit card that offers you free travel insurance instead of buying one each time you travel. For car insurance, look for one that offers discount or cashback when you renew without making a claim in previous year.
In the end, buying insurance isn’t just about coverage and investments, it’s also about utilising it to your advantage without breaking the bank. As we go through different life stages, our protection needs to evolve too. So review your insurance policies and tweak them accordingly to not only ensure better coverage, but also for better features and benefits in the long run.
For more information about life insurance products available in the market today, check out our website here. We also have tools to help you find the right medical coverage and customer care agents on standby to provide more information on critical illness coverage.
