Five essential insurance products
Do you consider yourself a risk taker?
Your answer may determine your attitude to insurance and whether you think it is an absolute must, sensible or a big con. Insurance is a multibillion pound business - more than 1,000 companies are licensed to offer general insurance in the UK, according to the Association of British Insurers (ABI), selling dozens of different types of policies that offer protection for everything from identity theft to erupting volcanoes.
The ABI estimates that the average household spent £1,068 on insurance in 2009. However, cases of policies not paying out when they should and the £8 billion scandal surrounding the mis-selling of payment protection insurance for loans and credit cards, have led some to wonder whether it isn't all just a huge waste of money.
"The array of insurance products out there reflects the needs of consumers. They are made in response to something - for meeting needs, not creating them - and the range simply reflects that life has become more risky," says Malcolm Tarling, ABI spokesperson.
Pete Harrison, insurance expert at comparison website moneysupermarket.com, says: "There are some essential policies everyone should have: car, buildings if you are a homeowner,travel if you go away and income protection if you have dependants - everything else depends on your lifestyle, attitude to risk and what you can afford." So, what do you need?
This is a legal necessity and well worth the cost of a policy, as ABI figures show that almost as much was paid out in claims (£10.3 billion) as was paid by car owners in premiums (£10.7 billion) in 2010.
Most homeowners have to take buildings insurance out as a condition of their mortgage. Nonetheless, it's a no-brainer. An average fire claim costs £7,900 and a claim following a major flood between £20,000 and £40,000.
This type of cover would protect you should you fall ill or become injured and unable to work. It is essential for anyone of working age.
As Matt Morris, spokesperson for insurer LifeSearch, says: "People are far more likely to become long-term ill than to die during their working life and state and employer sick pay will not enable you to maintain your standard of living long term."
Of secondary value to income protection but still important if you have a partner or children who are dependent on you as it ensures they will receive either a fixed payout on death or a regular monthly income.
This cover is vital. Without it, you could receive a bill for thousands of pounds should you fall ill abroad.
For example, an air ambulance call-out on the east coast of America costs around £35,000.
Even if you're travelling in Europe, your European Health Insurance Card won't fully cover you. These cards only mean you'll get reduced-cost, or sometimes free, state healthcare in the EU country you're in.
HOW TO BUY INSURANCE
Do not always accept your current insurer's renewal and beware auto-renewals onto higher premiums. It is easy to miss reminders so keep a diary note of renewal dates and shop around a couple of weeks beforehand. Comparison websites such as moneysupermarket.com, confused.com and comparethemarket.com are a good starting place.
DON'T DOUBLE UP
Check existing policies to ensure you are not already covered. For example, check whether your mobile phone is covered on your contents insurance before coughing up for another policy. Also check whether your employer provides life or medical cover.
CHECK YOUR EXCESS
Make sure the things you would be likely to claim for are worth more than the excess. And make sure you can afford to pay the excess.
Most insurance premiums are cheaper if you pay the full amount in one go rather than paying in monthly installments.
The practice of a dishonest salesperson misrepresenting or misleading an investor about the characteristics of a product or service. For example, selling a person with no dependants a whole-of-life policy. There have been notable mis-selling scandals in the past, including endowment policies tied to mortgages, employees persuaded to leave final salary pensions in favour of money purchase pensions (which paid large commissions to salespeople) and payment protection insurance. There is no legal definition of mis-selling; rather the Financial Services Authority (FSA) issues clarifying guidelines and hopes companies comply with them.
This is more usually a feature of car insurance but it can also crop up in contents, mobile phone and pet insurance policies. An excess is the amount of money you have to pay before the insurance company starts paying out. The excess makes up the first part of a claim, so if your excess is £100 and your claim is for £500, you would pay the first £100 and the insurer the remaining £400. Many online insures let you set your own excess, but the lower the excess, the more expensive the premium will be.
This type of insurance covers the structure and fabric of your property – the bricks and mortar, not the contents (for which you need contents or home insurance). If you have a mortgage, the lender will insist you have a suitable buildings insurance policy in place. Many lenders offer their own building insurance policies, but you don’t have to buy it from your own lender but you have the option of shopping around. The insurance covers you for the rebuilding costs, not the market value of the property.
Association of British Insurers
Established in 1985, the ABI is the trade body for UK insurance companies. It has more than 400 member companies that provide around 90% of domestic insurance services sold in the UK. The ABI speaks out on issues of common interest and acts as an advocate for high standards of customer service in the insurance industry. The ABI is funded by the subscriptions of member companies.
Does exactly what it says on the tin: covers the contents of your home for theft and damage and also may insure certain possessions (jewellery, cycles) outside of the home. Things to watch for include the excess and also the maximum payout on individual items. Another grey area is kitchen fittings, as some contents policies say these are not contents but part of the fabric of the property and covered by buildings insurance and some buildings policies don’t cover them because they regard them as contents.