Although keeping the cost of insurance – whether auto insurance costs or life insurance cost – down should be high up on everyone’s list, especially when prices seem to be hiked more and more often, hunting out the cheapest policy possible can sometimes cloud your judgment.
In the quest to spend as little as you can get away with on insurance premiums, you can easily find yourself in a situation where your policy won’t pay out when you need it to. We look at why you should be looking beyond the price of your premiums and more at what your insurance really covers.
What’s the problem?
The obvious problem with getting a cheap policy that doesn’t cover what you need is that we buy insurance for one reason and one reason only: to help us with the cost of what we otherwise wouldn’t be able to afford in unfortunate, unpredictable circumstances.
If your insurer won’t pay out when you need them to, or if you decide not to make a claim even though you need the help, your insurance policy becomes effectively worthless. Paying out for something every month that you never use is certainly not something any of us would volunteer to do.
For example, you might want to keep hold of your No Claims Discount on your car insurance, which is all well and good. However, if you are in a situation where you need to make a claim because of an accident, but you don’t for fear of losing your No Claims Discount, paying out for your premiums will have all been for nothing. Plus, you can take the option of protecting your No Claims Discount by paying a little extra when you have held it for a number of years.
Similarly you may decide to increase the voluntary excess on your home insurance policy, which is a good way to slash the cost of premiums. However if you increase the excess so much that you can’t afford to pay it when you need to make a claim, having that insurance in place will have been pointless.
So what should I do instead?
You should certainly always try to keep the cost of your insurance down so that you’re not paying more money to your insurer than is necessary. However, instead of taking the approach where you look for the cheapest policy around and then settle for what it covers, you should look at exactly what you’ll need the policy to cover first and then find the cheapest price for that specific level of cover.
For example, if you are buying car insurance make sure you are insuring your car to the correct value, getting any expensive equipment sufficiently covered, and be aware that if you’re buying Third Party Fire & Theft you won’t get any payout towards the damage of your own car in an accident.
In the case of home insurance, make sure you have a sufficient single item limit, adequate flood cover if you live in an area likely to be affected by floods, and that all your contents are adequately covered. With travel insurance, ensure you have sufficient medical cover, plus cover for personal liability and repatriation.
When it comes to buying any kind of insurance, it’s vital you establish your particular needs and find a policy to fit at the lowest price possible, rather than sacrificing what you need your insurance to cover for the sake of frugality.
And before you do commit to buying, make sure you have read all the terms and conditions to double-check your insurance will in fact cover you for what you need it to.
Skimping on insurance essentials, which will be different for everyone according to their circumstances, will only leave you in the cold when you need your insurance to save the day. So next time you buy insurance or you’re up for renewal, make sure you’re getting the best price – but still getting all the cover you need.