Don't blow a bargain holiday by overpaying on insurance

Forget travel agents when buying cover, or you could end up paying over the odds, says David Prosser

If you're planning a summer holiday now the nation's schools are breaking up, the good news is that travel agents are battling hard for your business. But while you can bag a bargain by playing holiday companies off against each other, don't give back your savings by paying too much for travel insurance.

There are two excellent reasons not to buy travel insurance from a travel agent. The first is that there is a good chance you'll pay over the odds this way - travel agents are almost always more expensive than independent insurance companies.

Thomson, for example, is currently offering 17 days of cover in Europe for £35. You would pay less than a third of that price - just £9.95 - if you bought the same cover from either Columbus Direct or Options.

The second reason to run a mile when your agent starts talking about cover is that the sale of insurance by holiday companies is not regulated. Since earlier this year, almost everyone selling general insurance has had to be authorised by the Financial Services Authority, the chief City regulator, which now polices the sector. But travel agents have negotiated themselves an opt-out from these rules.

As a result, these companies' policies are more likely to include unfair terms and conditions than the cover on offer from independent insurers. And if you get into a dispute about the policy - over a claim, for example - you won't be able to ask watchdogs to intervene if you bought through a travel agent.

However, that doesn't mean that insurers are whiter than white, according to Graeme Trudgill, technical services manager at the British Insurance Brokers' Association (Biba), particularly as the travel policy market is so competitive.

"There are several things that can trip you up if you're buying a cheap policy," Trudgill warns. "It's not just cover from travel agents that sometimes includes catches - the direct insurers sometimes do it, too."

In particular, check the rules on excesses carefully. If you make a claim on a travel policy, you will always have to pay an excess - this means meeting the first part of any claim, say the first £50, yourself. In some cases, however, insurers apply an excess to each section of your claim, rather than on the whole total.

If your handbag is stolen, for example, you shouldn't be asked to pay an excess of more than £50. But some cheap policies will charge you this excess on the bag itself, the money in it, your passport and on valuables as well. As a result, you end up £200 out of pocket.

"Some of the direct insurers also have blanket exclusions of claims related to incidents of terrorism," says Trudgill. If you're unlucky enough to be caught up in an incident such as the Bali bombing, say, this would mean paying your own medical expenses, for example, and meeting the cost of getting home.

Richard Mason, a director of the price comparison service Insuresupermarket.com, is also concerned about the differing quality of cover. He suggests there are minimum levels of cover that a policy should offer: £2m-worth of medical expenses, £1m cover for personal liability, £3,000 for cancellation costs and £250 for lost cash.

Also check what the rules are on pre-existing medical conditions. Travel insurers may refuse to pay up if you have not warned them you suffer from a particular illness, even if your claim doesn't relate to this condition.

Similarly, read the terms and conditions on cancellation costs. If you have to cancel travel for reasons out of your control - an illness, say, or a family crisis - you should be able to claim. But some insurers have wider exclusions than others.

As for saving money, in addition to avoiding travel agents, Mason says most people will now be better off with an annual travel insurance policy rather than buying cover each time they travel. Annual policies cover you for all the trips you make over the course of a calendar year - including long weekends and travels within Britain of more than three days.

Since the cheapest annual policies cost just a few pounds more than each single trip - you can pay as little as £50 to insure a family of four for multi-trip travel in Europe for a year - anyone taking more than one trip in a year is likely to be better off.

"You can save even more by being clever about when you travel," Mason adds. "If you're planning on holidaying during the last two weeks of August this year, say, arrange your annual policy to start then. Next year, take the first two weeks of August off and your policy will still be valid."

However, there is one group of travellers who may still find single-trip policies worthwhile. Many insurers will not cover people over a certain age, but the limits tend to be higher on single-trip cover. At Biba, for example, annual cover is not available to anyone over the age of 69, while the limit is 79 on single-trip cover.