Five insurance rip-offs to steer well clear of
1: Standalone mobile phone insurance
Losing your phone is annoying and can cost a lot of money to replace. To safeguard against this many people buy mobile phone insurance at a typical cost of around £7 a month. But this tends to pay out only if your phone is stolen or damaged.
Many policies are also riddled with exclusions, and often have an excess attached to them (typically between £10 and £30). A new iPhone 4 will set you back £500, so the excess in that case is only a small fraction of the cost of the handset.
However, if you have a standard phone, typically costing under £50 to replace, it is not worth paying for insurance: seven months' premium would cover the cost of a new one anyway.
Instead consider adding an 'all risks' option to your home contents insurance. This costs around £30 a year and will cover your valuables, including mobile phones, away from home.
2: ID theft cover
This type of insurance, costing between £5 and £7 a month, promises to cover you if your identity is stolen; but you already have the same amount of protection under the Banking Code. This stipulates that if the identity theft is not your fault, you'll get the money back from your provider.
ID theft cover often also offers you access to your credit report, but this is available through a credit reference agency such as Experian for just £2.
3: Payment protection insurance
The banks have been slammed for mis-selling PPI policies and many are now set to pay compensation to customers - a clear warning sign that this product might not be worth having.
While PPI sounds good in principle - it's sold alongside mortgages, credit cards and loans to cover repayments if you're unable to work because of accident or illness - it's expensive and comes with a lot of exclusions. Its big sister, income protection insurance, offers much more comprehensive cover and can be cheaper.
4: Travel insurance at the point of sale
Once you've booked flights, most airlines will try to sell you travel insurance. However, in most cases this will be cost more than it will be elsewhere, and the amount of cover, in particular the value of medical protection, won't be sufficient.
Instead use comparison sites to find cheaper, more comprehensive cover.
5: Buildings insurance from mortgage providers
When you apply for a mortgage, the provider will most likely try to sell you buildings insurance. This covers the structure of your home and is compulsory for all homeowners.
But go through an insurance provider instead to ensure you get cover that suits your needs at the right price.
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.
Payment protection insurance is designed to cover you should you fall ill, have an accident or lose your job and can’t make repayments on loans or credit cards. However, research by consumer watchdogs found the cover to be overpriced, filled with exclusions (policies exclude self-employment, contract employees and pre-existing medical conditions) and were often mis-sold because the exclusions were never fully explained. In May 2011, the High Court ruled banks had knowingly mis-sold PPI and ordered them to compensate around two million consumers.
Income protection insurance
If you can’t work in the event of sickness or illness, income protection insurance aims to give you an income, with the amount of income set by you up to 75% of your gross (before tax) income with the premiums varying by how much of your salary you want to cover, as well as your age and health and when you want to start receive any payouts. Any payouts from income protection insurance are tax-free and usually continue until you recover, reach your selected pension age or the period of cover specified in the policy comes to an end. Income protection insurance does not cover redundancy but you can buy it as a bolt-on.
A report containing detailed information on a person’s credit history, a record of an individual’s (or company’s) past borrowing and repaying, including information about late payments and bankruptcy. It also includes all applications a person has made for financial products and whether they were rejected or accepted. Your credit report can be obtained by prospective lenders to determine your creditworthiness.
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.
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.
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.