Three reasons you may be underinsured


It is very easy to have too much insurance. Everyone, everywhere always seems to be offering you cover for this or that.

But some recent research has suggested that plenty of us go the other way, leaving ourselves short of cover when we need it most. Let's take a look at three simple ways that you could leave yourself underinsured.

Buying insurance, but not enough
You can lower your insurance premiums if you increase the policy excess – the part of a claim that you pay yourself. You pay less, because you have less insurance.

You should never buy more insurance than you need. That's why raising the excess is perfectly sensible, and often the best decision – if you can easily afford to pay it.

However, Sainsbury's Bank recently found that one-third of those who made a claim after increasing their policy excess on car or home insurance had to borrow to pay the excess.

Some of those might have actually been able to afford the excess and they just paid by credit card for convenience's sake. Sainsbury's Bank didn't respond to my request for the list of questions asked in its survey of 2,000 adults, which might have clarified that.

But some policyholders will not have thought through the consequences of increasing their excess to the levels they did. The average increase was £327, which, to many people, is a huge amount of money.

Before choosing a high excess, think about what you can afford and how it will make you feel if you have to pay the excess yourself on a couple of claims in one year.

Compare how the excess you choose changes your policy quote with the comparison centre

Not informing your insurer after extensions and conversions
If you convert your attic, make a new garage, create an extra bathroom, or otherwise extend and improve your home, you probably have to let your insurer know.

More than half of those who made such improvements didn't do so, according to recent research.
If you have buildings insurance, you need to notify your home insurer before making the changes. If you don't, you could have trouble claiming the full amount in the event that something goes wrong.

At the very least, you give them one more way they can try to wiggle out of paying any claims.

Incidentally, you usually have to notify your mortgage lender before extending too.

Compare home insurance policies with

You haven't got an important insurance product
You, like most people, probably haven't taken out a very worthwhile insurance, namely income protection insurance.

Please don't confuse this with payment protection insurance (PPI). The name is very similar, but the insurance I'm talking about is different and far superior.

Your total future income is probably even more important and more valuable than your home. Income protection insurance will pay you an income for as long as you're unable to work and for as long as you agree with your insurer. That could even be decades.

This is one of the few insurance products that I normally find myself trying to convince more people to buy, rather than my normal message, which cautions against overexuberant selling of all insurance to all-and-sundry.

This insurance doesn't appear to be one of the most profitable for insurers and it's not easy for them to sell, which is why it gets so little attention.

This insurance is boring. It's an effort to compare prices and small print, and to buy it. It's an extra cost that you don't want. It doesn't put the fear in you to do something about it like critical illness insurance.

Yet this could well be more useful than life insurance or home insurance for you and your family, and it could pay out more than both those policies combined.

And it is generally much more useful than critical illness insurance, since it covers critical illnesses and more, in a better way, at a better price.

If you have family depending on your income, you should research income protection insurance.

See if you can save on your insurance costs