In times of recession we all want to minimise costs, however there are situations where it’s wrong to reduce spending. A restaurant can reduce costs by buying a cheaper water label, but not by switching off the lights and, even less so, by cutting down on heating or air-conditioning. It’s ridiculous to disconnect the heating and turn it on only if someone acts for a coffee, because it’s too expensive. Because of this psychosis about cutting down, we make irreversible mistakes, such as in insurance when we declare a lower value than the one that really corresponds. We call this: underinsurance.
It’s dangerous to add more risks to your policy! And worse still … believe that you still have everything in order. Because if, as well as the natural risks that exist, you do away with appropriate insurance cover, all you are doing is worsening the scenario in the event any accident occurs.
Underinsurance, correctly defined, means that you take out a policy and give the guaranteed goods or concept a lower value than it really has. In effect, “apparently” you save a little money when taking out the contract, but you are left high and dry if anything happens.
To explain things a little more, I’m going to give you an example: your furniture and belongings are valued at 60,000 Euro, but you insure them for only 30,000, and then there is an accident. You will be compensated in proportion to the insured value, in other words 50%. However your mistake was believing that you were covered up to 30,000 Euro, as this isn’t the case, because if there is an accident, you will be compensated according to the same proportional rule.
In insurance, you don’t actually buy a policy, you buy cover and therefore you have to realise that not buying the correct cover can have serious consequences.