Well, to suggest that you should over insure sounds outright madness but is it better than underinsuring?
The problem starts when people think of insuring their contents, most people don’t think of everything. All the crockery, cutlery and all those shoes for the ladies and the sports memorabilia for the blokes should all be included.
Firstly, who really knows how much contents cover they really need? Secondly how do you go about establishing what your contents are worth? Many people ask for “the average amount of contents cover” but in reality there is no average. When you simply select an amount of say $30,000 you are not considering everything that you own.
It doesn’t take long to sit down and add up your major items in your house using a new price value. This will show you quite quickly how underinsured you really are.
Remember, the insurer is not going to send you down to the local pawnbroker to pick up your TV. They are going to get major distributors like Harvey Norman to deliver your brand new TV so don’t think that the TV mum & dad gave you when you left home 15 years ago is only worth $50, as the insurer will probably have to spend $500 to get you a new one.
In essence if you underinsure, there is only one loser and that’s you, the insurer won’t be the loser. If your premium is for $30,000 then they will only replace your goods up to $30,000 which means you only have half a house full of furniture.
If you over-insure, then you may have spent a little extra in premium but if you paid for $60,000 of cover and only really have $50,000 of contents, then at least if your house burns down you will get a fully stocked house back. You won’t get the extra $10,000 in the hand but it may well be better than getting half your house replaced.
So can you actually insure for the correct amount? Well, you may get close but I wouldn’t think you will get it exactly correct so be prudent about what sum to insure you select.