Your Money: Sign up, and make a claim out of a crisis

Insurance: in the first part of a new series, we list some basic guidelines to help you get the best value from your policies
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The Independent Online
It costs each of us, on average, pounds 1,340 a year and yet we spend as little time as possible thinking about it. Buying insurance is boring. But it is a necessary evil - you cannot, for example, get a mortgage without having adequate buildings insurance and it is illegal to drive an uninsured car.

Fortunately, however, insurance is also an area where it is fairly easy both to save money and to avoid getting caught out if you have to make a claim.

Over coming weeks we will cover a range of insurance from cars to contents to cats. In each case we will spell out who should and should not have the insurance, what it costs, where to buy it, and give a range of pointers for those taking it out and those making claims.

But to start the series, here are 10 points of guidance on insurance generally:

Have enough insurance

It is essential to have cover for items that you could not afford to replace, such as your house. The Co-operative Insurance Society estimated that as many as 5 million households do not have adequate house insurance.

That is why flooding, for example, often leaves many people homeless: they do not have any insurance to fall back on.

Even if you do have insurance, make sure you have adequate cover, or any payment for a claim could be scaled back. Suppose, for example, your house contents are insured for pounds 30,000 but they are worth pounds 60,000. You might believe that you are fully covered for claims up to pounds 30,000. But if you got burgled and pounds 40,000 of possessions were taken or damaged, the insurer could pay you just pounds 20,000, on the basis that you had insured only half the value of your belongings.

Don't have too much insurance

There is obviously no point in buying a particular type of insurance if you do not need, or want, the cover it offers. If you are happy relying on the NHS, for example, do not fork out for private medical insurance.

Equally, check that you are not paying higher premiums than you need to because you have got too much cover. For example, Messenger, an independent adviser in Dorset estimates that around 30 per cent of people have too much buildings insurance and around 10 per cent of people too little. The insurance should cover the cost of rebuilding the property but sometimes the cover is for the value of the property which, particularly in the South-east, can be a much higher sum.

Try not to insure the same risk twice

You can only get paid once for the same claim - the idea of insurance being to compensate you for loss, not to enable claimants to make a profit. So double insurance is generally a waste of money. If you have an all- risks extension on your house contents insurance, this may well give you adequate cover for your belongings and money when you go on holiday. If so, buying a holiday insurance policy, which allows you to exclude cover for those belongings already insured, will save you around 25 per cent off the holiday policy. Roughly a quarter of holiday insurers will offer such discounts but they do not generally advertise the fact, so ask.

Exploit discounts

Insurers are increasingly trying to vary premiums according to relatively minor differences in risk. That is why factors such as your occupation, age and even what newspaper you read can all affect what you pay.

One simple way of cutting the cost is agreeing to meet a higher part of any claim (the excess). Accepting an excess of pounds 100 rather than pounds 50, for example, could cut at least 5 per cent off your premium.

Shop around

Many people simply renew their policies each year without switching insurers. But intense competition over the last few years has driven premiums down, in particular on house and car insurance. Because premiums vary so much according to your circumstances, the best bet is to phone round.

Beware of fraudsters

Fraudulent insurance companies are rare but they do occasionally crop up. If in doubt, check with the Association of British Insurers (0171 600 3333).

Get the right cover

The cheapest policy may not be the best one. Barry Hulbert of Hill House Hammond, a broker in Bristol, points out, for example, that "if their car gets wrecked, many people want to have a courtesy car while they make a claim but some of the largest direct insurers don't offer this benefit".

Equally, the more bells and whistles the policy offers, the higher the premium is likely to be, so check you are not paying for services you do not really want or need.

Follow the claims procedure

Not getting the right evidence to back up your claim might seem an obvious trap but lots of people fall into it. If you have something stolen on holiday, insurers will require you to report it to the local police before allowing you to claim. Similarly, if you get your car repaired or roof replaced before the insurer has a chance to assess the damage, you can normally kiss your claim goodbye.

Don't get caught by exclusions

Beware the risk of buying insurance that does not cover you at all. If you have had a recent illness or medical problem and do not disclose this fact when applying for, say, travel insurance, then any medical cover in the policy could be null and void.

If the policy exclusions were not properly pointed out to you when you bought it, complain.

Fight your corner

Insurers are coming down hard on fraudulent claims. But a by-product of this campaign is that more people may find their legitimate claim rejected. If you think you have been unfairly treated, or given poor advice, complain. If the insurer rejects your claim you can get an independent ruling for free from the Insurance Ombudsman (0171 928 7600) or, for life insurance products, the PIA Ombudsman (0171 240 3838).

q Next week: car insurance.

q Jean Eaglesham works for 'Investors Chronicle'.