The good, the bad and the ugly
Chiara Cavaglieri guides you through the different types of cover from the essential to the money-wasters
Sunday 05 June 2011
Mobile phones, holidays, identity fraud – insurers turn on the hard sell for just about anything.
For some people, peace of mind is almost priceless, and they happily spend thousands of pounds a year to protect their possessions. The best type of insurance offers cover for items you could never replace from your own pocket. But at worst you could be paying over the odds for a policy that you simply do not need.
Good: Home insurance
Mortgage lenders usually insist on buildings insurance before they offer anyone a home loan. But even if you've paid off the mortgage you should have a policy in place, unless you can rely on your savings to cover the cost of rebuilding your home.
"Our homes are the most valuable assets we own and it makes perfect sense to insure them, so that if the worst should happen, there is protection in place to safeguard you from costly repair bills," says Nicki Parry from the Moneysupermarket.com comparison website.
As well insuring the bricks and mortar, cover for home contents is another must-have if you don't want to fork out after the theft of or damage to expensive gadgets and furnishings. It is usually more cost-effective to take out combined buildings and contents cover. But remember, the sum insured should cover the cost of rebuilding the property, not the market value, and beware of under-insuring your contents or you may only receive a proportionate payout.
Good: Travel insurance
This is one of the cheapest types of insurance, and if you travel without it you risk having to pay for the cost of any medical treatment. This is particularly unwise in countries such as the US and Canada where the cost of treatment and repatriation can be huge.
If you travel more than once a year, buy an annual policy. Always check the excess payable – it may be worthwhile paying a little more to lower this – and see if you're already covered through your current account, home insurance or credit card.
"Many policies represent excellent value for money. For example, the cover included with the Sainsbury's gold credit card, at just £5 a month, will cover up to two adults and six children including winter sports," says Andrew Hagger from Moneynet.co.uk.
"It includes medical cover, lost luggage, lost cash and valuables, travel delay, missed departure, cancellation cover, personal liability cover and piste closure. This is a lot of cover for just £60 per year, and offers genuine peace of mind for travellers," he adds.
Good: Life insurance
If you're young and single, you probably don't need to worry about life insurance, but if you have a family who rely on your income it could be a godsend. Most policies pay out a lump sum but you can opt for Family Income Benefit, which means that the beneficiary receives regular payments instead.
"As a minimum, you should take out enough cover to pay off the mortgage if you die, so that your partner and children have a mortgage-free place to live. And if you can afford to spend a bit more on your monthly premiums, you might want to take out additional cover to provide a financial cushion for your family if the worst happens," says James Daley editor of Which? Money.
Good: Car insurance
As a legal requirement, car insurance gets an automatic "good" tag but you still need to be careful when picking your policy.
All drivers must have at least the third-party, fire and theft car insurance which covers the cost of damage to other vehicles. But a fully comprehensive policy is better value and could even be cheaper. This may sound strange but insurers have increased premiums as younger drivers, statistically more likely to make a claim, tend to opt for basic cover.
"In today's competitive market, insurers will often offer you low premiums, in return for poor-quality cover – which is great when you take out your policy, but not so great when you come to make a claim. If cost is a problem, don't assume that third-party fire and theft cover will save you money. Comprehensive cover can be cheaper, and gives you greater peace of mind," says Mr Daley.
Bad: Mobile phone insurance
Even with the all-singing, all-dancing 3G phones around today, experts agree that there is no need to pay out for insurance because it is so easy to self-insure instead.
"When thinking about the costs covered by other types of insurance (in some cases £75,000 for home insurance and £2m medical expenses on travel insurance) the cost of replacing even the top-of-the-range handsets isn't much more than £500," says Ms Parry.
In some cases you can claim for damage to or loss of your mobile through your home contents insurance policy or a packaged bank account. If not, it is still better to put a few quid away each month and keep an old handset on standby as your emergency phone.
Bad: Extended warranty insurance
The big problem with extended warranties is that more often than not the repairs you need aren't covered because they are classified as "wear and tear". Even if they are, you may find that the cost is little more than the premium anyway.
"It's not surprising that some retailers are so pushy when it comes to extended warranties, often there's more profit in the warranty than on the actual goods you're buying," says Mr Hagger.
As with mobile phone insurance, you're better off saving the equivalent monthly premiums in a separate account so that you have something to fall back on if something goes wrong.
Ugly: ID Theft insurance
Typically costing up to £80 per year, ID insurance is rarely good value for money as a lot of the protection it gives is offered elsewhere.
"For instance, should you find that someone has opened a credit card in your name and run up big debts, as long as you can prove to the credit card issuer that this was done by someone else they would not hold you responsible for the debt," says Ms Parry.
Under the Banking Code, your liability in cases of ID theft is limited to just £50 anyway, which is less than the cost of the average policy.
If there has been fraudulent activity on your bank account, reporting this to your bank usually means that it will reimburse you for any money lost as long as you haven't been grossly negligent.
Ugly: Accidental death cover
Accidental death cover is designed to pay out if you die in an accident, but with so many exclusions making it difficult to make a claim.
"Some policies won't cough up if you were to die doing something they deemed too risky, such as rock climbing or having an accident under the influence of alcohol. Also, some policies will not accept a claim if the death was a result of a mental or physical illness," says Mr Hagger. Furthermore, you could already be covered for incidents such as car accidents and fires by your car and home insurance, or by standard life insurance.
Good: Wedding insurance
Weddings are an expensive business these days, and things can go wrong, so taking out insurance can be a sensible precaution.
"It's relatively inexpensive. Low-cost policies can be as cheap as £25, and provide cover for cancellation, presents, lost rings, and even cover the cost of having your wedding photos re-taken," says Mr Daley. "These policies have relatively low cover limits – typically from £5,000-£10,000 – for cancellation. But if you want a more comprehensive policy, it's possible to buy as much as £30,000-worth of cover for around £60."
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