The term overinsurance refers to a situation in which insurance coverage is much higher than the property insured.

Overinsurance is a common occurrence among household insurance policyholders. Over-insuring your property should be avoided because you could end up paying more than necessary in premiums.

It is also important to note that the value of your property can also change. While you may not have been over insured when you took out your policy, you may end up over insured if the value of your property decreases over time.

Example: A household with an estimated value of 100,000 francs is covered by a sum insured of 100,000 francs.

Several years later, after the sale of several items of personal property with a combined worth of 25,000 francs, the estimated value of the household is only 75,000 francs. The policyholder is paying premiums for 100,000 francs of coverage, but only needs 75,000 francs worth of coverage.

The “opposite” of over insurance is underinsurance.

Policyholders who pay for overlapping insurance coverage or unnecessary insurance policies are also sometimes said to be over insured.

More on this topic:
Useful and unnecessary insurance policies
Tips to avoid overlapping insurance coverage

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Expert Benjamin Manz
Benjamin Manz is CEO of moneyland.ch and an independent expert on banking and finance.