10 ways to cut your insurance costs
In light of the economic doom and gloom, more than five million Brits were prepared to slash their insurance costs last year by reducing their policies or even cancelling them completely, according to insurance provider LV=.
But while it might seem pointless to pay money for something you’ve never claimed on, ditching your insurance cover could backfire.
Not only does the recent rise in redundancies highlight the need for income protection cover to safeguard your finances should you lose your job, but if you skip the £20 or so a month you pay for life insurance or decide not to bother with travel insurance, you could find yourself left with your partner’s £300,000 mortgage, or a broken leg on a ski trip, racking up a massive hospital bill.
However, you can ensure you get a good deal from your policies – and still remain fully covered.
Step one: review your policies
While most of us review our motor insurance on a yearly basis, we don’t always apply the same logic to our other insurance policies: in 2008 just 7% of motorists who also owned a home looked for new home insurance policies.
According to price comparison website confused.com, customers saved on average £295 a year on motor insurance and £183 a year on home insurance simply by using the internet to find a better deal.
It’s also important to check your policies on a yearly basis, because if your circumstances have changed, your cover could either be insufficient or you could be paying for something you no longer need. For example, if you’ve stopped smoking, and have been a non-smoker for 12 months, you could cut your life insurance premiums in half.
Step two: do your research
If you want to slash the cost of your insurance it is vital search the whole market to find the best deal rather than just letting policies roll-over. This is because insurers reward new customers with cheaper premiums, at the expense of their loyal customer base.
There are dozens of price comparison websites out there, including confused.com, gocompare.com and comparethemarket.com, which will give you an idea of the premiums available. Moneywise also offers a motor and home comparison service, in our Compare & Buy section of the website.
Remember, it’s important to use more than one comparison tool to get a comprehensive idea of what's out there. In addition, several big insurers, such as Direct Line and Norwich Union, are not listed on any price comparison website, so it’s worth contacting these providers directly.
Andy Watson, head of HSBC insurance UK, says: “Consider what’s right for you. For example, are you more comfortable handing your money to a name you know? Does the company have a high-street presence where you can talk to people face to face?”
Don't just compare products based on price - look at the small print and policy information (see step three) to make sure you get the comprehensive cover you need.
Step three: read the small print
Make sure you opt for a policy that’s right for you. Searching around for the best insurance deals can get pretty tedious, but don’t be seduced solely by the cheapest policies.
What’s the point of a home insurance policy that includes no or inadequate flood protection when you live next to a river?
Once you’ve chosen your insurance policy, familiarise yourself with its exclusions and stipulations so that you don’t get caught out. For example, typical small print in a home insurance policy could state that if your home is broken into using ‘unsecured’ tools taken from your garden, then your cover would be void.
This could mean that as basic a mistake as leaving a hammer lying around outside or a ladder propped against a wall could invalidate your claim.
Likewise, when filling out application forms, be as thorough as possible. It’s unwise to withhold information just to get a cheaper insurance policy – if you then need to make a claim, and it becomes clear that you’ve been a little too creative with the truth, your insurer is not obliged to pay out.
Step four: make changes to your policy
If you want to reduce your monthly outgoings, there are various things you can do to your insurance policies to lower the cost.
Firstly, you can increase the amount of excess you pay (the amount you have to pay yourself). The more excess you are prepared to pay, the lower your insurance premium should be.
However, you should only opt for a higher excess if you can afford to. “Most people think their chances of claiming are pretty low, so would rather pay lower premiums and take the hit with a bigger excess,” says Kelly Ostler–Coyle, spokesperson for the Association of British Insurers.
But if you need to claim on smaller amounts, a high excess means you’ll be paying most of the costs yourself.
“For example, minor accidental damage such as stains on a carpet might cost you £300,” Ostler-Coyle says. “But if the excess is £200, you’re only getting £100 from the insurer.”
To cut the cost of income protection insurance, you could prolong the period between making a claim and receiving your payout. The longer you defer, the cheaper your monthly premiums. For example, a 35-year-old male non-smoker wanting cover of £1,000 a month would pay around £31 a month for one month deferred, but only £15 a month if he opts for a six-month deferred period.
Step five: check you’re not paying twice
Before you take out insurance make sure you haven’t already got some cover in place. For example, if your home and contents insurance policy is an ‘all-risk’ one, it might also cover items that you take out and about, such as your mobile phone, or even items you take abroad.
Kevin Carr, director of protection development at Prudential, also recommends checking what benefits your employer is providing. “A lot of employers pay what is commonly called ‘death-in-service benefit’," he says. "This pays two to four times your basic salary and is very common in the UK. Income protection insurance is quite common too, and about 2.5 million people hold this through their employer."
However, with some types of protection, having double the cover is no bad thing. Carr cites life insurance as an example: “If your employer offers life insurance, you don’t get that much – if you have a £30,000 salary, you’ll receive £120,000, which is not much if you’ve got a mortgage.”
But you can only be covered for loss of income once, so if your employer offers you income protection, there’s no need to take out an additional policy – in fact, if you do, you could get into trouble from a legal point of view. This is because you can never be paid more than 60% of your gross salary if you’re unable to work.
Step six: opt for annual holiday cover
After you've forked out for flights, accommodation and a holiday wardrobe, the last expense you want is travel insurance. However, skimping on insurance could have serious repercussions. You may lose or have your luggage stolen, need medical treatment or suffer from flight problems. When this happens, insurance is your best bet to get your money back - but it can't be bought retrospectively.
So how can you ensure you stay fully covered while avoiding having to pay over the odds?
If you are going away a couple of times a year one of the easiest ways to save money is to opt for an annual policy instead of buying individual ones. For example, a single premium for one-week worldwide travel would cost £29.29 for insureandgo.com’s silver policy, compared with £53.60 for its multi-trip equivalent.
Step seven: swap a joint life insurance policy for two singles
“If you’re in a couple you might think joint cover is the way to go, but you’d only get one payout; in comparison, two single policies would pay out twice,” says Matt Morris, policy senior policy adviser at IFA LifeSearch.
Taking out two policies will cost you slightly more, but it represents better value for money. And in the long term, if you have any dependants, it makes sense to get two payouts instead of one; a joint policy will only pay out on the first death, leaving the surviving partner without cover.
You could always try to arrange a separate single life cover policy then, but this might be difficult and could end up being expensive, as premiums rise with age.
Also, if you separate, you can take your individual policies with you.
Step eight: keep in shape
In the life insurance world, you are classed as a non-smoker after a year of not smoking, and the difference in what you can expect to pay a month is about double. For example, if a 30-year-old man who smokes took out combined critical illness and life cover to the value of £150,000 over 25 years, he would pay £64.69 a month with AXA, compared with the £37.77 he would pay as a non-smoker.
That’s £8,076 more over the whole term as a smoker – roughly the price of a new Ford Fiesta.
Heart disease, high cholesterol and blood pressure are all associated with obesity, so the more overweight you are, the ‘riskier’ you will be classed as by your insurer. This is reflected in your premiums, which are ‘loaded’ accordingly. A body mass index between 18.5 and 24.9 is deemed healthy, but if your BMI is over 30 you can expect to pay considerably more. The same applies, if you’re below 18.5 and underweight.
Reducing your alcohol intake will help keep your premiums down too. The recommended weekly amount is 28 units for a man and 21 for a woman. “As soon as you drink more than 30 units a week [roughly 10 pints], your insurer will start to take an interest,” warns Morris.
Some insurers reward you for leading a healthy lifestyle. For example, Prudential’s ‘Vitality’ programme offers a discount on various things such as gym membership and travel, as well as lower life and critical illness premiums, if you can demonstrate you are leading a healthy lifestyle.
“You can reduce your premiums on your insurance by up to 2% a year by leading a healthy life; moreover, in November last year, Pru launched what’s known as ‘premium locking’, where the policy locks in at the lower premium until it ends,” explains Carr.
So even if you break your leg or simply have just had enough of your fitness regime, you will still pay the lower premium.
Step nine: cherish your car
While you can’t get round having to take out car insurance, because it’s a legal requirement, you could reduce the cost of it in a number of ways.
First, calculate your annual mileage to make sure you’re not over-insured. Basically, the more miles you drive, the more likely you are to have an accident, so the less you drive the better.
You could even agree to an annual mileage cap with your insurer. Parking off-road means less chance of theft and vandalism. If you use a garage for your car, this will shave even more off your insurance costs.
Whether you take out fully comprehensive or third-party cover will depend on your circumstances: the former is more expensive, and if you have an older car, which you’re likely to replace in the near future, then paying extra for comprehensive cover might not be worthwhile.
However, Steve Sweeney, head of home and motor insurance at moneysupermarket.com, says: “You shouldn’t dismiss comprehensive insurance out of hand because you believe it to be more expensive than the third-party option. In some cases, the policies are no different in cost, or as little as £37.”
Pay a lump sum not per month It might not always be practical to pay all your insurance premiums as lump sums, but if you can do so on your pricier policies, you’ll avoid the hidden annual percentage rate charges that some consumers end up forking out just because they pay on a monthly basis.
“If you’re paying monthly, then check that you aren’t paying an instalment fee, as this can add up to over 20% of the premium,” says Watson. This means a £400 annual policy would cost you an extra £80 a year.
Step ten: get rid of deadwood
While it's important to have insurance, there are some polices you might be better off ditching.
For example, payment protection insurance (PPI). Commonly sold alongside loans, credit cards and mortgages to protect the borrower in the event of an illness or losing their job, PPI is expensive and full of exclusions, compared with other protection insurance products.
Extended warranties are also rarely having as they often work out more expensive than repair costs. When you buy goods, they should come with a manufacturers’ guarantee, which usually lasts a year, so an extended warranty is often unnecessary.
Identity theft insurance can also be a waste of money, as it costs approximately £7 a month. However, you are already covered for any financial loss as a result of theft in the Banking Code, and you are entitled to free advice from the government’s fraud protection service Cifas.
You can also pay £2 to check your credit record for any fraudulent activity with one of the three credit reference agencies, Experian, Equifax and Callcredit.
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).
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.
A financial adviser who is not tied to any financial services company (such as a bank or insurance company) and is authorised by the Financial Services Authority (FSA). They can advise on financial products to suit your circumstances. All IFAs have to give consumers the choice of paying by fees or commission and have to explain which would best suit the customer in that particular instance. Also, if commission is paid either by the client or the financial service provider recommended by the IFA, the IFA must disclose what that commission is.
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.
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.