Money: Save up for do-it-yourself insurance

Much cover is just a waste of money, says Edmund Tirbutt

Where are people willing to buy cover for everything - their gas boiler, the washing machine, the garden furniture and the cat. But if they could take a step back, they might be able to see that none of these policies is necessary. The trick to keeping peace of mind without shelling out a fortune is to combine savings and insurance policies.

Saving up an emergency fund is known as self-insurance and everyone should do it. You should pay some money by standing order each month into a high- interest account that is completely separate from your other affairs and that requires no more than a week's notice to access.

Standard Life (0345 555657) pays 5.35 per cent gross on pounds 1 upwards and allows you to run several linked accounts. You can get a higher overall rate of interest but keep your savings separate from the emergency funds. If you have access to the internet, an Egg account (www.egg.com) offers the same deal (including linked acounts) and pays top interest rates of 6 per cent.

If you do decide you want to buy insurance then consider no-frills policies which allow you to keep costs down by paying a high excess - that is, the first part of a claim which policyholders must pay themselves. In return you will get a reduction in premium.

Some types of insurance, on the other hand, are of such dubious value that it may be worth trying to do without. Extended warranties are a good example. Insuring a pounds 1,500 personal computer for five years will cost you around pounds 500 in a single payment. Saving that much in a self-insurance account would give you a decent lump sum towards a new computer after five years.

Most of the cover your extended warranty is buying during the first year is just duplicating what is already provided by your free manufacturer's warranty.

Other less-than-value-for-money insurance is that offered by accident, sickness and unemployment cover to protect a mortgage, although standards will be raised by new rules due to be introduced in the summer. Pet insurance can also be a waste of money, especially for very old or unusual pets.

The bulk of insurance needs tend to fall within three main categories : home, car and family. Here are some low-cost ways of dealing with them:

Household policies. For home contents insurance, in particular, there has never been a better time to buy. Premiums on average cost around two thirds of what they did five years ago. Those feeling the pinch can consider no-frills contents policies that can be as little as pounds 50 a year in rural parts of England. These provide peace of mind by covering the major risks such fire, theft and water damage but exclude cover for accidental damage or loss of personal possessions outside the home.

Most motor insurance also remains good value but it may be worth seeing a broker to discuss what type of cover to buy. Cover for third party-liability is compulsory and in practice most people buy policies that also protect their own vehicle against fire and theft. It can sometimes be worth cutting back on comprehensive cover - which also covers your own vehicle against accidental and malicious damage and can include extras such as windscreen cover and towing charges.

Robin Belsom, at Colin Ryan Insurance Brokers in Ipswich, says: "If someone is under 21 and their car is worth pounds 1,500 because it's eight years old, I would question the value of comprehensive cover because it will probably cost twice as much as third party, fire and theft and involve a compulsory excess of pounds 300 or pounds 400.

"For older drivers, on the other hand, the difference in cost between third party, fire and theft and comprehensive cover is often as little as 20 per cent. Indeed we've had cases when they've cost the same."

Covering the family can throw up the biggest headaches because life cover, critical illness cover and permanent health insurance tend to involve high payouts that no one can realistically hope to pay from savings. Premiums, particularly for the two health-related covers, can be significant and some families on tight budgets may have little choice other than to go for the bare minimum - a life policy that pays out on death.

Don't ever get bogged down by paying for insurance you cannot afford. Penny O'Nions, principal at The Onion Group, an IFA in Amersham, says it is important to keep a sense of perspective.

"All insurance is a gamble and you must weigh up the odds of actually ever having to claim," she says. All too often, there is a great onus on having protection in place and, while this is important, it shouldn't be to the detriment of other requirements, such as food, clothing and holidays."

Suggested Topics
Start your day with The Independent, sign up for daily news emails
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
peopleMathematician John Nash inspired the film Beautiful Mind
News
Richard Blair is concerned the trenches are falling into disrepair
newsGeorge Orwell's son wants to save war site that inspired book
Life and Style
Audrey Hepburn with Hubert De Givenchy, whose well-cut black tuxedo is a 'timeless look'
fashionIt may be a paradox, but the industry loves it
Arts and Entertainment
The pair in their heyday in 1967
music
Life and Style
fashionFrom bathing dresses in the twenties to modern bikinis
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Abuse - and the hell that came afterwards

Abuse - and the hell that follows

James Rhodes on the extraordinary legal battle to publish his memoir
Why we need a 'tranquility map' of England, according to campaigners

It's oh so quiet!

The case for a 'tranquility map' of England
'Timeless fashion': It may be a paradox, but the industry loves it

'Timeless fashion'

It may be a paradox, but the industry loves it
If the West needs a bridge to the 'moderates' inside Isis, maybe we could have done with Osama bin Laden staying alive after all

Could have done with Osama bin Laden staying alive?

Robert Fisk on the Fountainheads of World Evil in 2011 - and 2015
New exhibition celebrates the evolution of swimwear

Evolution of swimwear

From bathing dresses in the twenties to modern bikinis
Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine