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Personal finance - Are you adequately insured?

By Edited May 17, 2014 0 0

A key aspect of dealing with your individual personal finances is that of insurance and ensuring you are adequately covered for your own specific circumstances. In a nut shell, insurance is protecting against the unknown and things that may or may never happen, and because of this insurance is often viewed as a necessary evil. If you are one of the lucky ones and never have to make a claim then all those premiums paid over the years can be viewed as dead money, which is wasteful. Because of this many people resent insurance, especially when things are going good. However, if the proverbial ever does hit the fan then insurance is the godsend that ensures you and your household can survive and worth its weight in gold.

Having insufficient insurance cover is risky, but on the other hand having too much insurance cover is wasteful, and in these tough economic times very few people can afford to be wasteful. The objective here is balance and it is important to get just the right amount of insurance cover, i.e. the optimum level of insurance cover. Identifying the optimum level of insurance cover is difficult, and when you consider every single household is unique and different all will require different levels of insurance cover. As a result of this it is difficult for most individuals and households to find a similar situation on which they can use as a benchmark for their insurance needs.

Some insurance policies are mandatory in specific circumstances. For example, if you drive a car or ride a motorcycle on the public highway you are required by law to have a valid insurance policy. If you are buying a property and require a mortgage the loan company will stipulate you must have valid buildings insurance policy and failure to do so will be a breach of contract which may lead to the loan being called on immediately. Like it or not, you will be required to have some insurance policies whether you want them or not.

Other types of insurance policies are optional and it is entirely up to you whether you want to take out the policy or not. There are hundreds of different insurance policies available and it is possible to insure almost anything. From your life to your pet to your flat screen TV it is likely you will find some insurance company willing to provide some cover. It is the optional insurance policies where you need to take a step back and really think hard before taking out a policy.  

In the UK the insurance market is heavily regulated by the Financial Services Authority however, this does not stop unscrupulous insurance companies encouraging people to take out insurance policies that they don’t really need, and worse still not worth the paper they are written on. These insurance companies gain their business by preying on people’s fears and toying with their emotions. By making people think the worst is going to happen these insurance companies are taking hundreds of thousands of pounds from consumers. Perhaps the hardest pill to swallow is that these insurance companies are not breaking the law in any way. The insurance companies are not physically forcing people to take out insurance policies however it can be argued that their hard sell techniques by increasing consumer’s fears is unethical.

Insurance companies are renowned for making pressure sales, therefore it is important you stop and consider everything before taking out an insurance policy. You need to ask yourself a few questions, such as “how much are the premiums going to cost?”, “what is the likelihood you will make a claim?”, “will the payout exceed the premiums if you do make a claim?” and “can you get the insurance cheaper from a different provider?” amongst many others. Never sign on the dotted line without questioning the policy and what it will provide, however many people get pressured in to taking out insurance policies on the spot. If this happens there is no need to worry since you will have a cooling off period, i.e. an amount of time in which the policy can be cancelled, however it is best not to be pressured to sign up to a policy immediately. It is far better to take a copy of the insurance proposal home and go through it with a fine toothed comb making sure all your questions are adequately answered. An informed decision can only be made once you have read and understood the insurance proposal.

 It should always be remembered that an insurance policy is nothing more than a product and there are several retailers out there who are only too willing to take your money and provide you with some cover so it is worth shopping around.

Back in the day, before the internet, shopping for insurance was a long and tedious task. Insurance shopping meant hours on the phone providing the same details over and over again to different insurance companies, waiting for all the different proposals to arrive by snail mail, comparing the proposals, selecting the proposal you wanted before finally contacting the insurance provider to arrange cover. Perhaps the worst thing of this process is that you would be plagued by calls from all the other insurance companies hassling you and trying to sell you other policies. The insurance companies had your details and they used them, and aggressively at that.

However, now we have the internet buying insurance is a quick and easy process. The best way to buy insurance online is through a comparison website. Google “insurance comparison” and you will find many of these sites. These sites are great since you only need to enter your details once, the quotes are given in a matter of seconds and give a summary (which allows a quick comparison between all the different insurance providers) as well as the cost of the insurance policy. You are then free to browse through, compare and think about each one before making a decision. You will get plagued by marketing emails from insurance companies offering other insurance products but an email is less obtrusive than a phone call right? Besides, if you set up an “insurance email account” which is separate from your usual email account then you can direct the emails there and delete them all at a touch of a button. 

1) Think about the level of cover you need

Don’t try and reduce the premium and save money by underestimating the value of the item being insured, after all you don’t want to have to make up the shortfall if you do need to make a claim. However, never state the item is worth more than it actually is as this will increase the premiums and if you do make a claim you will only get the market value of the item in any case. You will not get the inflated value.

2) Always shop around for the insurance cover

Let the comparison websites do the legwork for you. Simply tap in your details and requirements, hit “search” and sit back and wait for the quotes to come to you.

3) Always check the details and requirements you typed in to ensure they are correct

If the details aren’t correct the insurance company may refuse to pay out in the case of a claim, i.e. your insurance is basically in valid. Any errors you find, no matter how small or insignificant you think it is, correct and obtain new quotes. Whilst this may appear tedious it is a worthwhile exercise that could save you a lot of headache in the event of a claim.

4) Always compare the insurance policy quotes and never choose solely on price

You need to check each quote thoroughly and ensure it satisfies your needs. Is the level of excess acceptable? Does it include legal protection? It is likely there are many questions you want answered so draw up a checklist and tick them off as you go through each proposal.

5) Always read the proposal thoroughly

Don’t rush and skim read as it is likely you will miss something. Put aside an afternoon for the task of reading each and every word of all the insurance quotes and make sure you do it before buying a policy.

6) buy the policy

Most insurance companies will give you the option to pay the premium in monthly instalments. If you have the cash available always pay the insurance premium in a single payment since paying by instalments attracts a ‘charge’, which is calculated as a percentage of the insurance premium

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