Insurance in depth
Save money on your insurance
February 2007
They say that a fool and his money are soon parted. But simply being too busy to keep your eye on the ball can mean that you end up getting a poor deal, buying a product you don’t need or paying a bill you don’t have to. Annie Shaw of CashQuestions.com shows you how to save money on insurance.
Here’s our checklist of some of the main financial pitfalls to avoid when choosing insurance.
1. Payment protection insurance
This type of insurance is supposed to help you pay the mortgage, credit card bills and make personal loan repayments if you become sick or unemployed. Between 6.5 and 7.5 million new policies are taken out annually, but statistics show that only one in 20 policies results in a claim – a nice little earner for the salesmen. Worse still, dodgy sales practices and unfair small print seem to be the norm. According to Citizens’ Advice, of the 450,000 claims that are made every year, a massive 85 per cent are turned down, often because the policyholder did not qualify for cover in the first place.
The consumer watchdog, the Office of Fair Trading, is investigating sales of PPI, and the finance industry regulator, the Financial Services Authority, has been examining sales processes.
Avoid these policies, unless you really think you need one. If you do decide to buy, don’t just buy from your loan provider, shop around – and always check the small print.
2. Extended warranties
Electrical goods retailers are said, in some cases, to make more money from selling extended warranties than they do from the goods they are insuring. Extended warranties are supposed to pay for repairs or replacement of appliances, such as washing machines and televisions, if anything goes wrong within in a certain period, normally after the manufacturer's guarantee ends.
However, as modern electrical goods have become more reliable, statistically you are unlikely to claim on one of these policies. The consumer lobby group Which? has called extended warranties a “rip-off,” after research showed there was only a 15 per cent chance that customers would make a claim on a three-year warranty purchased with a washer drier. Prepare to pay through the nose for the “peace of mind” these policies are supposed to provide.
3. Duplicate insurance
It’s easy to sign up for individual insurance policies, such as mobile phone cover or travel insurance, in the shop or travel agent without really considering your other policies.
If you have household insurance you may very well already have some of the cover you are thinking of buying. You can often pay less for travel insurance by opting out of baggage insurance if it is covered on your household policy. You may get a free extended warranty period or accident insurance if you use a particular credit card. If you travel abroad a lot, consider an annual multi-trip policy, which will probably work out cheaper than a series of one-off policies.
4. Buying insurance from a travel agent, mortgage lender or loan company
Packaged insurance bought alongside the product you are insuring will rarely be the best deal. Make sure you check prices elsewhere before buying, and that you are buying suitable cover – once again, watch the small print.
5. Multi-section travel insurance policies
Many travel insurance policies have multi-section excesses. An excess is the sum you must pay yourself for each claim. A policy with multi-section excesses would treat the theft of a woman’s handbag, containing her purse with foreign currency, her husband’s wallet and two passports, as five sections – the wife’s bag, the wife’s money, the wife’s passport, the husband’s wallet and the husband’s passport – with an excess on each. A good policy will have just one excess per claim, so there would be just one excess payable for the theft of the bag and its contents.
6. Paying for insurance by instalments
Paying for your motor or home insurance in monthly instalments can be convenient and spread the financial load, but you are probably being charged between 15 per cent and 20 per cent extra for this convenience. Try to pay the bill all in one go.
7. Expensive life insurance
When you buy most types of insurance you will usually pay more for enhanced cover – you will pay more for better terms and fewer exclusions. Term life assurance is the exception. It simply pays out if you die and nothing if you don’t. You can choose the product purely on the price for the level of cover you need. Don’t pay more than you need to.
Annie Shaw is Editor of CashQuestions.com
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