What is Over Insurance?

Over insurance is insurance for properties where the insured has purchased so much protection that it exceeds the actual cash value of the risk or insured property. Excessive insurance is a moral hazard risk for insurance companies because the insured can be tempted to make false claims to profit from losses. Various protections are designed to prevent over insurance. However, certain types of coverage, specifically disability income insurance, are subject to excessive insurance misuse.

Example of Excess Insurance

  • Your car is insured with Rp. 200,000 and was written off due to an accident. Appraisers come to the conclusion that the car can be replaced with Rp. 160,000.
  • As a result only IDR 160,000 was paid. But you have paid a premium to cover insurance of Rp. 200,000 and a premium paid at an additional Rp. 40,000 has been paid for nothing.

Excessive insurance is a risk for the insurance industry and especially insurance fraud. The insured person who has excess insurance may be tempted to make a false claim to profit from the loss.

Ways to Prevent Excessive Insurance

It remains your responsibility and not the responsibility of the insurer to ensure that your property is insured with the correct value. Here’s how you can prevent excessive insurance from happening:

  • Be proactive with your insurance and financial needs.
  • Study the terms and conditions of your policy to get an understanding of what your insurance company considers “excess insurance”.
  • Review your insurance annually and ask your insurer to ensure that the property is not insured for more than its market value. The aim is to buy the right cover and the right price.
  • It is also important to ask your bank about financial obligations if your vehicle is financed through a financial institution.
  • Save invoice file of goods purchased. But remember, you have to ask your insurance company how much it costs to replace items that have been purchased.


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