When are you under insured? Is there such a thing as being over insured? How do you know when you have got it right?

While most of us are probably a little cynical about the sales tactics of insurance dealers – whether companies or brokers – one of the most useful concepts in the business is ‘appropriate coverage’. A responsible insurance salesman or an independent financial adviser (and insurance broker) wants to make sure that their customer is properly insured but not paying for insurance they don’t need.

Insurance is about covering risk. Everyone, rich or poor, is subject to life’s ups and downs. The aim of insurance cover is to make sure that if those risks are realized, there is money in place to help out.

The insurance basics are -

Life Insurance
Critical Illness Cover
Mortgage Insurance
Property Insurance
Payment Protection (or Loss of Income) Insurance
Pension Cover

These types of insurance cover you for difficulties with core financial areas of your life. You or your partner may die and, particularly if you have children, their death could leave you lacking financial support. Appropriate life insurance based on replacing their income should be in place.

Similarly either you or your partner may experience a life threatening illness. It is important in these circumstances to be able to pay off major debts (credit cards, loans and mortgages) and to have additional money to replace any loss of income and to enjoy some of life’s pleasures (such as an exotic holiday) in case the opportunity is stolen away. You should estimate how much may be needed and insure accordingly.

Mortgage insurance can supplement or be part of the coverage above, paying off your mortgage in unfortunate circumstances.

Property insurance which divides into building insurance and insurance of your possessions is one of the most likely forms of insurance you will need. Inevitably in any household, things get broken and need replaced or fixtures and furnishings are damaged. And you certainly do not want to be without insurance if your house suffers structural damage for any reason.

Payment protection can be part of life or critical illness cover but also serves if you are unemployed through no fault of your own. It is virtually always cheaper to take this cover out separately for any debt liabilities you have rather than take the cover offered by the company giving you credit.

Finally, although it may not seem to be part of insurance, pension planning is regarded by most insurance companies and brokers to be part of securing cover for people’s personal circumstances especially these days when many company plans seem to be going to the wall. Whether you are looking for an additional sum on retirement or simply want a good private pension, most companies have products on offer to match your needs.

So basically you are under insured if you have not covered these core requirements and you should be talking to your insurance broker or company about meeting your needs in those areas. You are over insured if you are paying for a level of insurance you don’t need in those areas. You should balance your insurance requirements between ability to pay and your likely needs. If your partner is earning £ 30 k per annum there is little point in trying to replace his income with the equivalent of £ 50 k. But remember even a non-working partner will be contributing to the household. It is estimated, for example, that housework is worth up to £ 24 k per annum.