Measuring the Value of Your Insurance Policy

Rightfully so, most people are so serious about their insurance that they follow protocol to the tee, such as arranging motor vehicle coverage before they even pick up their newly purchased car and proceed to drive it off the lot. It is indeed that serious, but there is a common practice of thinking that once you’ve organised your insurance and you religiously pay your premiums on-time, then that’s it and you don’t need to worry a single second longer.

That’s not the case – it’s not a simple matter arranging the insurance and then that’s that.

I guess I have to go back in reference to a post I published last year about anything which comes from the financial industry that is designed for the masses only really favouring one party and in this case it’s the insurance company. In order to get the full value out of any financial product or service you pay for, you need to get involved a little further.

To get that full value however you need to know exactly how to measure it and it’s not that difficult in any case. It does however require a little bit more involvement on your part and by no means is it fun in any way. It’s boring and tedious, but it’s a good practice to effect by way of your personal finances.

Data Collection & Analysis

You’ll be surprised at the positive results data collection and analysis can yield with regards to the elements which come together to make up the dynamics considered as part of your insurance coverage, no matter what type of insurance is in under scrutiny. Where to start though?

Running costs

For an asset such as your primary residence it’s a little bit of a different story since the value of your property appreciates over time, otherwise you need to start collecting data on the operational costs of the asset you’ve taken out insurance for. The easiest example to use is that of your motor vehicle, of which the running costs can be calculated based on the models used by car magazine publications. Factoring in costs such as fuel, tyres, service and everything else really, you can come to a cost-per-mile figure.

Comparison with your coverage value

Once you’ve collected enough data and you have a more accurate figure of how much the asset you’re covering costs you to run, call up your insurer and ask them one simple question. “Hypothetically speaking, if I was to file a claim right now, how much would the payout be on my vehicle?”

If the figure you’re given is less than 50% of the value you’d get for the sale of that asset at its current valuation, you might need to negotiate a better deal. The 50% difference threshold only stems from the fact that insurance companies offer their financial service to cover incidents such as car accidents and injuries, which is why you can’t expect to get more than 50% of the current value.

Anything less than 50% however suggests that you’re paying way too much on your premiums.