Four insurance products worth having
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? Here our four insurance policies that may not be essential, but would be worth having.
The usefulness of this insurance, for theft or accidental damage in or outside the home, depends on the value of your personal items.
If they are worth a lot, in the case of heirlooms and antiques, they are worth insuring. But not all policies will cover high-value items, so these may need to be insured separately anyway.
If you can easily afford to replace items such as TVs, laptops or designer handbags by dipping into savings, then contents cover may be less valuable to you.
This isn't as important as life insurance or income protection, according to Morris, but a useful add-on if you can afford it. The policy will pay a tax-free lump sum if you become seriously ill or disabled before retirement age. You might not think that's likely but in fact it happens to one in four women and one in five men, according to insurer Bright Grey.
PRIVATE MEDICAL INSURANCE
This will pay for necessary treatment following GP referral for illness or injury that is not related to a preexisting condition. Many big employers offer it as a benefit to staff. But many people do not know they are already covered, so it is worth double-checking.
Vet bills can total thousands of pounds. Uninsured animals may have to be put down if owners cannot afford the treatment, so these policies, which cost around £15 a month for a young dog, can pay off.
It is wise to take out whole-life cover with one provider as this will continue to pay out for the same condition if it recurs throughout the pet's life.
Switching to a new policy with a new insurer after a pet has suffered a condition will invalidate any claims for that illness in future – this is one case where you shouldn't shop around for a better deal each year.
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 oof 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.
Private medical insurance
PMI allows you to skip the NHS waiting list and arrange treatment at a time you choose. With most PMI policies, you pay a monthly premium (the older you are, generally the higher premium) and the policy will then pay out, up to specified cover limits and after an agreed excess, for any treatment you might need. Not all conditions are covered by PMI and you get what you pay for: the more cover you want, the higher your premium will be.
Tax-free lump sum
An inelegant phrase that is nonetheless accurate in what it describes: a one-off payment to a beneficiary that is free of any form of taxation. Usually received when using a pension fund to purchase an annuity, as 25% of the overall fund can be taken as a tax-free lump sum.
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.
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.
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.
Generally thought of as being interchangeable with life assurance, but isn’t. Life insurance insures you for a specific period of time, at a premium fixed by your age, health and the amount the life is insured for. If you die while the policy is in force, the insurance company pays the claim. However, if you survive to the end of the term or cease paying the premiums, the policy is finished and has no remaining value whatsoever as it only has any value if you have a claim. For this reason, life insurance is much cheaper than life assurance (also called whole of life).