No-frills insurance – will it cover you?
As O2 becomes the latest firm to venture into the protection market, Chiara Cavaglieri looks at the pros and cons of cheap deals
Sunday 14 February 2010
Supermarket shoppers are used to the idea of basic in-house products offering a cheaper alternative to the big brands. Now the no-frills trend is spreading to travel, home, motor and even health insurance.
And, with Tesco and Virgin Money striving to muscle their way into mainstream banking, as well as companies such as O2 spreading their wings into new territory with the launch of its travel insurance products last week, consumers can expect to see more budget and supermarket own-brand products.
Yet cheapest isn't necessarily best, particularly with insurance, but what are the savings that can be made, and are there any pitfalls if you head straight for the best buys?
Travel cover is already one of the cheapest insurance products on the market and many banks now offer inclusive travel insurance as extra incentives for their current accounts. O2 entered the travel insurance market last week with the launch of single-trip cover, annual cover and O2 Flow – a rolling monthly contract that can be adjusted on a trip-by-trip basis so that cover levels can be increased – and extra cover for skiing can be added as and when it is needed, instead of all year round.
So what should you be looking out for beyond simply the best price? According to the Foreign Office, all travel insurance policies should cover medical expenses of about £1m for Europe and at least £2m for the rest of the world. This is probably the most important element as medical expenses abroad can rocket. You'll also need about £1,500 for baggage, as well as £3,000 cancellation cover in case of a home emergency. Finally, you must have personal liability cover of about £1m to protect you if someone makes a claim against you for an injury or damage.
"Policies providing this cover start at as little as £12.86, for a couple heading to Spain for a week, with Simply Travel Insurance," says Steve Sweeney, an insurance expert at comparison site Moneysupermarket.com.
You should also make sure you are covered in case the airline or tour operator goes bust before or during your holiday. However, if your trip is a package holiday, it should be Atol protected so you'll already get a full refund if the airline goes bust.
Once these essentials are covered, the serious business of cutting costs can begin. First, consider an annual policy. As a general rule, if you'll be travelling at least twice a year, an annual European or worldwide multi-trip policy is the cheapest option. If you know you'll be travelling only once, go for a tailored single-trip policy.
Look out for other insurance policies you have which may offer extra cover within the policy details. You may, for example, find that your home contents insurance covers your possessions outside the home, including abroad, so you can adjust your travel insurance policy and potentially pay lower premiums.
Private medical insurance (PMI)
The best way to buy PMI is usually through an independent financial adviser, although another option could be ActiveQuote, a comparison site which allows you to specify which policy benefits you require.
PMI pays for the private treatment of short-term, curable illnesses known as "acute" conditions. It covers diagnosis and treatment fees, accommodation and nursing charges, X-rays and specialist treatment – but be wary of cheaper policies, which may have less generous caps on what you can claim in each category.
How much PMI costs will depend on what you want from the policy. If you want to include dental and optical cover, you will have to pay more, but if you're concerned only about in-patient care you will find premiums are much lower. Similarly, if you're willing to opt for a lower grade of hospital accommodation, or happy to agree to get treatment on the NHS if it's available within six to 12 weeks , then this should shrink costs even further.
PMI policies with added benefits may also save you money. PruHealth, for example, offers Vitality points for policyholders who have regular health screens, buy healthy food and visit the gym. Points can then be used to reduce the cost of using the gym, although that discount has now been restricted to 25 per cent of the total cost. PruHealth also offers up to 25 per cent no-claims discount.
Co-payment plans are another option and these keep premiums to a minimum in exchange for you agreeing to pay a percentage of any claim. WPA is one of the biggest players in this field and it pays 75 per cent of any claims, leaving you to pay the remaining 25 per cent. There is a cap on the amount you pay each year, ranging from £500 to £5,000, and, as with a standard excess, the bigger the cap, the lower the premium you pay.
You may even conclude that you don't need PMI at all. As with life cover, your employer may already offer to pay for PMI for you and your whole family as a perk. Or, a healthcare cash plan may be more suitable. You pay a small monthly premium so that when you need treatment you can reclaim a percentage of the costs. Plans will vary in terms of what is covered and the maximum you can claim back. However, even the cheaper policies tend to cover a fairly broad range of treatments.
Alternatively, you may prefer to self-insure against the risk of needing private medical care instead.
"Personally, I'm not a great fan of PMI as it is generally expensive and there are more and more exclusions in the policies," says Jasmine Birtles of Moneymagpie.com. "In some cases – particularly for young professionals – you are better off putting money aside in a special, high-interest savings account to cover you if you have expensive medical bills."
Car insurance premiums are rocketing and those renewing their policies will notice a sharp increase. What are the dangers of scaling back the level of your car insurance? Downgrading your car cover can be fruitless as taking out the cheaper third-party insurance can often be comparable to more comprehensive cover because premiums are based on the risk you pose as the driver. If you have only third-party cover and have an accident, you will have to pay for any damage to your car and face a premium hike after the accident. "In most cases, fully comprehensive policies are cheaper than third-party products, due to a rise in drivers with a more 'risky' profile, such as younger motorists, opting for third-party only to keep the cost of motoring down," says Mr Sweeney.
Increasing your excess will cut your premiums but, again, caution is necessary. If you use your car only a few days a week, it may be worthwhile taking on a higher excess, but for anyone driving every day, there is little point risking a large excess.
If you have an old banger, it may be more suitable to opt for third party fire and theft cover. However, remember that you will have no protection against medical expenses or loss of personal belongings.
Look out for specialised policies such as the new car cover from AXA which rewards experienced motorists who have at least eight years' no claims with a discount of up to 90 per cent on premiums and a £1m driver-protection cover as an add-on for £34.99 a year.
The first thing to chew over when considering life cover is whether you really need it. If you have children or dependants, the answer is probably yes. However, if you are single and childless this is a waste of money. You should also see what your employer offers first, as some companies have generous death-in-service benefits.
For cheap no-frills life cover, term insurance is your best bet and is usually taken out to cover mortgage payments. Opting for decreasing term insurance, which falls over time, will cut costs even further and may be adequate if you have a repayment mortgage. Alternatively, you could take out a whole-of-life policy, but these cost far more and could provide more cover that you really need.
Remember that you can change providers in the same way that you change your car or home insurance. However, premiums do tend to rise with age, and if your health has deteriorated you could be better sticking with your current deal. If you have quit smoking since taking out a policy, you will almost certainly find a cheaper deal.
Life insurance is particularly cheap for women. For example, a male 35-year-old non-smoker taking out £150,000 of cover over 20 years costs £10.05 per month with Aviva, while a female 35-year-old non-smoker with the same cover costs £8.10 per month with Royal Liver, according to broker Lifesearch. However, searching for life cover on comparison sites can be tricky as the cheapest premium quoted may be more expensive if you have any health issues.
"Basically the cheapest quotes are usually cheap because they subsidise it by charging (or 'premium loading') clients with imperfect health severely," says Matt Morris from Lifesearch. "It may take weeks before you find out that the premium you thought you were going to get will actually be much more expensive."
Opting for the cheapest policy is far more of a risk. It may be tempting to save money by removing flood cover, for example, but the savings are rarely worth the risk of having to cover thousands of pounds' worth of damage.
"There are so many things that can go wrong now, such as flooding and damage due to icy conditions, that it's important to get yourself covered with a company that will help out if everything goes wrong," says Jasmine Birtles.
Underinsuring the value of your contents is unwise, so evaluate your belongings regularly to keep this up to date. Remember to include everything from clothing to carpets which can often be overlooked. Check to see if your insurer includes immediate cover for new items to protect against the loss of Christmas presents and wedding gifts.
Once you're confident you have a comprehensive policy there are some simple money-saving steps. For example, a combined contents and buildings policy is likely to be cheaper than two separate policies. Also, if you can afford it, pay up front for the whole year instead of by direct debit because some insurers charge interest on instalment payments. Increasing your excess levels will also drive the premiums down, but remember this can be a bit of a false economy if you do have to make a claim and end up having to fork out hundreds of pounds.
The home insurance market is highly competitive, with special discounts and sometimes freebies to entice consumers. but these types of offers can skew perceptions. It's vital to shop around comparing actual quotes, as well as getting a quote directly from companies such as Aviva and Direct Line as they don't feature on comparison sites.
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