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Tonight, tomorrow and the next day - because a small investment of your time can help save hundreds of pounds every year in the amount that you pay out to insure your house, your car and your holiday
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The Independent Online

Motor insurance premiums are set to rise by a quarter over the next year. But the good news is you can cut your car, household and other insurance costs dramatically by spending a few hours on the phone or internet, comparing prices. You could typically save £150 to £200 on car insurance and £75 to £100 on home insurance, while you may be able to reduce life assurance premiums by a third.

Motor insurance premiums are set to rise by a quarter over the next year. But the good news is you can cut your car, household and other insurance costs dramatically by spending a few hours on the phone or internet, comparing prices. You could typically save £150 to £200 on car insurance and £75 to £100 on home insurance, while you may be able to reduce life assurance premiums by a third.

Market researcher Mintel predicts motor insurance will rise by a quarter over the next 12 months, following an increase of a fifth in the last year. The impact of direct insurers such as Direct Line has been to heavily cut premiums in the last four years - now insurers want to re-establish higher profits. In addition, insurers' overheads have risen through higher personal injury claims and increased garage repair and replacement component costs.

Many motorists have faced premium hikes - sometimes by as much as half. But there is no reason to sit back and accept this. After all, why worry about investing money efficiently if you are throwing away hundreds of pounds for the sake of a few hours on the phone?

It is probably worth phoning two or three brokers, about six direct insurers, a couple of banks and at least two internet insurers. Internet-based insurers are proving increasingly competitive and other providers may offer lower prices over the Web - the AA offers a 5 per cent discount for those arranging cover through the internet.

Even if premiums are not rising substantially on renewal, it is still worth comparing prices. Because an insurer or broker provided the cheapest quote last year does not mean it remains the cheapest. The market is constantly changing, with some of the banks now offering increasingly competitive deals. While the biggest premium variations tend to be on high risk cover, it is still worth comparing prices on lower risk insurance (see table).

Which? magazine reviewed car insurance two years ago and was able to save over £2,000 for one motorist and found a disparity of £3,000 on premiums for a fictitious case. The AA calculates motorists who compare insurers usually save around £150 - the difference between average premiums paid and the average of the lowest three premiums available. Which? found direct insurers were not always the cheapest - brokers could sometimes provide cheaper deals.

Remember, too, that moving house, putting a teenager on or off the driver's list and even changing jobs can all affect premiums in a big way. Some insurers are more competitive for certain age ranges, while others are best for some post codes, but not others.

Suzanne Moore, spokeswoman for the Association of British Insurers (ABI), says the most important factor in lowering premiums is to shop around, but she suggests doing other things too. Discounts may be available, but may need to be asked for - including reductions for alarms and immobilisers on cars, or burglar and fire alarms plus quality door and window security on homes. Passing an advanced driving test may reduce premiums, particularly for younger drivers. Ms Moore says many people can also get reductions through employer or trade union schemes.

Another option is to increase the excess - the amount the insured will meet in the event of a claim. Increasing the excess on home insurance from the standard £50 to £100 is likely to save 15 per cent, and raising it to £500 should discount premiums by 30 per cent. It is also worth looking at insurance costs when choosing a car, or even a house.

There are opportunities for almost as large savings on home insurance as there are with cars, and here prices are falling. The ABI says mortgage lenders probably still provide the majority of buildings insurance. But such policies are unlikely to be the cheapest, especially with direct insurers fighting for a larger share of this market. At the last count, in 1998, only 15 per cent of household insurance was with direct insurers.

Which? found massive disparities in premiums. In one instance, a range of quotes varied from £74 to £226, with the lowest five all from direct providers. In another instance, buildings-only insurance premiums varied between £195 and £466. The AA found consumers who shop around can save £40 on buildings insurance against average premiums, plus another £35 on home contents.

The cost of life assurance has fallen substantially in recent years, and anyone with an old policy should review premiums. "When HIV and AIDS first came about, the Government actuary was very cautious and said that insurers had to take this into account in setting premiums," says Ms Moore. "But it has thankfully not been as big a problem as feared and so premiums have been slashed." This is particularly true for young single men.

Independent financial advisers regularly advise clients to renegotiate or move policies - Holden Meehan says it can typically save clients one third of premium costs. Donna Bradshaw, of Fiona Price & Partners, suggests couples re-broking life assurance policies might be better off with single-life assurance. She adds: "People should consider the cost of a range of their insurance protection policies, not just their life cover, but also their critical illness cover and income protection policies. People who have bought income protection through banks or mortgage lenders can save a lot on this."

While income protection policies are important safety nets, many provide too little protection or are over-priced. Lenders will typically try to sell these alongside mortgages, other loans and credit card balances. But consumers may be better off with stand-alone policies which cover all their debts in the event of accident, sickness or unemployment. Some borrowers do not need to buy cover if they have their own permanent health insurance (PHI) policy or are members of a group PHI scheme through their employment.

Buying the most expensive income protection policy on a mortgage can cost an extra £20 a month (see table) - or £6,000 over the term of a 25-year mortgage. It is important, though, to compare the level of cover as well as premiums. "For those who do want to buy [income protection] cover, the cost of buying the wrong cover can be very expensive," says Ray Boulger, of John Charcol mortgage brokers. "Lenders will often offer their own policy and imply you must take it. Sometimes lenders have sold policies to customers without checking that customers are entitled to payment - for example, contract workers may not be eligible for compensation if their contracts are not renewed."

Mr Boulger recommends consumers avoid taking out accident, sickness and unemployment (ASU) cover payable as a single premium up-front which is added to the balance of a loan. This can add as much as 20 per cent to monthly repayments, he says. The self-employed seldom benefit from ASU policies, he adds, as they are likely to be refused payment under the policy conditions and will receive more effective cover by taking out a PHI policy instead.

John Fox, principal trading standards officer for Leicester City Council, advises consumers to review ASU policies, even where they have paid up-front - which they may be entitled to a rebate on. He recommends those affected consult local trading standards departments or citizens' advice bureaux to establish whether it is in their interests to cancel their policies. In the case of one borrower who sought help from Mr Fox, the cost of insurance on a car loan added 33 per cent to loan repayments.

"Until April this year, most personal loan lenders - banks, building societies, Marks & Spencer's and others - were giving discounted APRs if you took out PPI [payment protection insurance]," says Mr Fox. "It was a practice the Office of Fair Trading took exception to, and the Government has stopped that. There is no reason why borrowers who were tied into these agreements can't cancel the policies now." Doing so will not affect the lower APRs agreed under those agreements, adds Mr Fox.

Expensive cross-selling of insurance still badly affects one product area - holidays. Insurance sold by travel agents is usually much more expensive than stand-alone products. Last year, Which? found insurance sold by Cosmos could be five times more expensive than from a direct insurer. It is also worth considering buying annual insurance if you travel abroad more than once a year.

Altogether the savings possible from careful insurance selection can be surprisingly large. More careful selection of motor and home insurance policies may save £250 to £300 a year, and many people with life assurance cover can save £60 or more through renegotiation or changing policies. Going direct to an insurer for payment protection policies can save £100 or more a year. And buying holiday insurance from an insurer will often cut the holiday bill for a family by £100 or more. Which just shows the value of shopping around.

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