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● You’ve probably heard the term ‘underinsurance’ tossed around before. But what does it actually mean – and how do you know if you’re underinsured or overinsured? When it comes to insurance, getting the coverage ‘just right’ can feel a bit like trying to hit a moving target. But finding the insurance sweet spot isn’t impossible. Let’s walk through the basics of ensuring you have the right level of coverage. Whether you’re reviewing your first insurance policy or a seasoned pro, you’re sure to pick up helpful tips to ensure your coverage is just right. For the uninitiated, insurance offers you financial protection against significant and unforeseen losses. Simply put, you pay a fixed amount of money (called a premium) regularly to an insurance company, and in return, they will pay for damages or losses above a certain amount. It is not a new concept to most people, but it is often complex, simply because it is technical. Terms like deductible, excess, or co-payment are often used, and you must understand their definitions to avoid getting too many different plans. : If you have a health insurance policy with a $500 deductible, you must pay the first $500 of your medical expenses yourself. Once you’ve paid that amount, your insurance will cover the remaining costs according to the policy terms. If you’ve ever wondered if you have enough protection or if you’ve ever felt paying so much for insurance, this is how you assess. Being underinsured means your policy won’t cover the full cost of potential losses, leaving you on the hook for the rest. On the flip side, being overinsured means you’re paying higher premiums than necessary for the level of risk you need to insure. This can drain your finances unnecessarily and divert funds from other important financial goals. That said, in the review process, spot any red flags waving in front of you! Check if your plans are bundled plans as well. The premium could be expensive because of features that overlap with your other plans. Let’s learn from examples. Being underinsured means your insurance policies don’t provide enough coverage for your needs. This often happens when policy limits haven’t kept up with inflation or life changes. For example, if you bought a home 10 years ago but haven’t increased your homeowner’s coverage since then, a major claim today could easily exceed your limits. The same goes for car, health, and life insurance. As your assets increase in value, you take on more debt, or healthcare costs rise, your existing policies may no longer fully protect you. It’s a good idea to review all your insurance policies at least once a year to ensure that the existing coverage still meets your current needs. The trick is to find the right balance of coverage for your needs without overpaying. But how do you do that? Life circumstances change, and so should your insurance coverage. Major life events like , having , or necessitate a review of your insurance needs. Schedule an annual review of your policies to ensure they align with your current situation. Ensure you buy enough for cars and health insurance. Getting third-party liability can protect you if you cause an accident, home insurance covers damage to your home and belongings, and health insurance helps pay for medical care, treatment, and hospital stays. If cost is a concern, you can increase the deductibles (out-of-pocket before insurance company starts to cover the remaining costs of a claim) to lower premiums. Be wary of expensive riders and add-ons that provide minimal benefit. For example, you may not need earthquake coverage if you live in an area with little seismic activity, i.e. Singapore. Expensive life insurance policies are also usually unnecessary if you have dependents. You may be better off sticking to a basic term life insurance as the extra premiums you pay for overinsurance are essentially wasted, and that money could be better spent elsewhere or invested. Over time, the additional premium costs really add up. It’s a good idea to review your policies at least once a year to make sure you have appropriate coverage limits based on current costs to rebuild your home or your vehicle’s value. You may be able to lower coverage amounts and save on premiums. So there you have it—a quick guide to help you determine whether your insurance coverage is at the right level. Don’t just accept what you’re offered or keep what you have out of habit. Take some time to think through your personal situation and risk factors to make sure your policy limits are suitable. Getting this right means you’ll have peace of mind that you and your loved ones are protected financially in case a disaster strikes. And you won’t be paying over the odds for cover you don’t actually need either. Finding the insurance sweet spot takes some work, but it’s worth it for your future financial security and well-being.