Could You Be Over-Insured?

“Too much of a good thing can be bad. After all, you can drown even in clear, clean, pure water.” 

While long-term insurance is crucial in any financial plan, you may unknowingly be paying for more coverage than necessary, especially if you have multiple policies in place. This situation often arises when individuals have both personal insurance policies and group insurance benefits through their employer, or when required to take out insurance to cover a car or home loan. Such duplication can lead to unnecessary costs without providing additional benefits, diverting funds away from areas where they could be better utilized—such as enhancing your investments.

Understanding Your Coverage

To assess your insurance needs effectively, it’s important to understand the different types of policies:

• Personal Insurance: Typically arranged with the assistance of a financial adviser, personal insurance caters specifically to your financial needs and circumstances.
  
• Group Insurance: Provided by your employer as a benefit, these policies often offer life cover, disability cover, and sometimes critical illness cover at a lower cost due to pooled risk among employees. However, they are not personalized and may have limited payouts.
  
  At Silverspoon, we always take work benefits into account when calculating cover amounts. Please bear in mind that employee benefits can be subject to inspection by the trustees of the pension/provident fund, and payouts to dependents may also be subject to tax if not invested correctly.
  
• Loan Insurance: Insurance required to cover a loan is usually a straightforward policy designed to cover the loan’s value.
  
  Be cautious of excessive premiums through “convenient products.” More often than not, your long-term insurance  spending is better catered for at a reputable insurer.

Where Overlap Happens

Having more than one policy might lead you to assume you have double the protection, but this isn’t necessarily the case. If you have a personal life or disability insurance policy alongside employer-provided coverage or another policy for a loan, you could be paying for unnecessary duplication. 

• Understand Benefit Payouts: Insurance companies may not always pay out if multiple policies cover the same risk. For instance, disability cover can be structured as a lump sum or income protection. If both your group and personal policies offer the same type of cover, the benefits may not stack as you expect. Particularly with income protection, you can only insure a portion of your current salary. For example, if you have personal cover for 75% of your earnings and group cover for another 75%, you will only receive a maximum of 75%, resulting in unnecessary duplication.
  
  This 75% can increase to 100%, but 75% of salary is a realistic basis for coverage. Speak to an accredited advisor from the Silverspoon Group for more information.
  
• Critical Illness Cover: If both policies include critical illness cover, check if they cover the same conditions. Overlapping policies could mean you’re paying for coverage you don’t need. On the other hand, having two insurers can mitigate risk; we have seen one company pay out while another does not—based on different claims definitions—without either insurer being wrong.

What Happens When You Retire or Change Jobs?

It’s important not to rely solely on group insurance, as it’s tied to your employment. If you retire, switch jobs, or your employer changes their benefits, you may lose your group coverage. This can leave you without insurance when obtaining a new personal policy might be more expensive due to age or health considerations. Therefore, while reviewing your coverage, ensure you have a sustainable long-term plan that remains intact regardless of career changes.

This is not always the case; we often convert employee benefits back to standalone cover with limited medicals, a huge advantage when leaving an employer.

How to Assess Your Needs

To determine if you are over-insured, consider the following steps with a Silverspoon accredited advisor. We have made significant strides in ensuring our clients’ premiums remain affordable, and we believe the ultimate goal should be an investment portfolio that creates self-insurance.

• Calculate Your Required Cover: Assess your financial obligations, including debt, living expenses, and dependents’ needs, to determine how much coverage is necessary.
  
• Review Your Existing Policies: Compare the benefits offered by your personal and group policies to identify any duplication. Remember that extra coverage may be justified in certain circumstances, particularly if you have high liabilities or many dependents.

By aligning your coverage with your actual financial needs and understanding where overlap occurs, you can strike the right balance between protection and cost-effectiveness. 

To discuss whether your insurance cover is appropriate, please speak to us.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact us for specific and detailed advice.

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