World 10 · Taxes, insurance & financial systems · Lesson 8 of 12

Common insurance mistakes

Over-insuring small things, under-insuring big ones, and not reading what is excluded.

6 min read · Level: Practical · Free — no account needed to read

The idea

The most common insurance mistakes follow a pattern. Over-insuring small, affordable things — extended warranties, insurance on cheap gadgets — while under-insuring large, ruinous risks. Buying on price alone without checking what is covered. Not reading exclusions. Not updating cover when life changes: a new child, a new home, a new business. Letting policies lapse by missing payments, just before they are needed.

Another is under-declaring or misdescribing things to lower a premium, which can give an insurer grounds to refuse a claim. And many people pay for overlapping cover — the same risk insured through a bank account, a credit card and a separate policy — without knowing it.

Why it matters

Avoiding these mistakes usually saves money and improves protection at the same time.

A real example

The situation

Noor pays for travel insurance separately each year, not realising her bank account already includes it.

What happened

Reviewing all her policies at once, she finds the overlap and two small warranties she no longer needs. She cancels them and uses the savings toward income protection, which she had lacked.

The takeaway

Seeing all her cover together showed both waste and a gap.

How people actually behave

Insurance is usually bought one policy at a time, at the moment of a purchase, so people rarely see their protection as a whole.

Common mistakes

• Paying for overlapping cover without knowing it.
• Understating details to lower a premium, which can void a claim.
• Not updating cover after big life changes.

Questions to think about

• When did you last look at all your insurance together?
• Has anything changed in your life since you set up your cover?

Try it: The yearly insurance review

1. List every policy and any cover included with accounts or cards.
2. Look for overlaps, gaps and outdated details.
3. Fix one thing this month.

Words in this lesson

• Insurance policy — The contract setting out what an insurance covers, its limits, exclusions, premium and deductible.
• Coverage — What an insurance policy includes, up to what limits, and what it excludes.