Beware sneaky insurance sales
When Mark Barber, a London communications consultant, booked a flight online he ticked the boxes for the flights he wanted and then went on to pay. It was only when he checked the confirmation before his flight that he realised he had somehow managed to buy travel insurance too. Mark, 30, says: "I didn't need it as I already have travel insurance, and I hadn't ticked any box to say I wanted any."
Mark checked on the Ryanair website and found that the insurance box comes ready-ticked, so unless you specifically unclick the box, the airline automatically includes it and charges you £11.50. "I felt really ripped off. When I called them, they said there was nothing they could do, although they'd sold me something I didn't want in an underhand way," he says.
This practice is known in the trade as 'inertia selling'. This is when something you don't want is bundled in with something you do, and unless you unbundle it yourself you end up buying it without realising.
The most high-profile case of inertia selling has been payment protection insurance, bundled in with loans. PPI will usually cover your loan repayments for a year if you're off work though long-term sickness, or made redundant. However, it doesn't pay out for long, is void if you had any reason to suspect you would be made redundant and is unsuitable for the self-employed.
It also adds hundreds or even thousands of pounds to the cost of a loan - a £10,000 loan over five years could cost over £3,000 in PPI. Yet, despite all this, there are still 20 million active policies in the UK.
When the Office of Fair Trading looked into the sale of PPI it concluded: "The evidence as a whole suggests consumers get a poor deal." It referred the issue to the Competition Commission, which is expected to report on its findings this month. Meanwhile, the FSA has been investigating the way PPI is sold through pre-ticked boxes in online applications, and has put pressure on loan companies to stop the practice.
An agreement was finally reached in June 2007.
But there are plenty more inertia-exploiting deals still around. These include tacking premium protection onto life insurance, which will pay out if you can't pay the premiums for six months. Given that life insurance premiums are often as little as £10 a month, and that premium insurance costs £2 or £3 a month on top, you could end up paying more for the cover than you would receive as a benefit.
Then there's mobile phone insurance, often cited as a poor deal. Vodafone, for example, offers customers three months free insurance. After three months, customers have to call to cancel the policy or they are charged.
Vodafone said: "All customers are given the option to opt in or out, and those that opt in can cancel the service at any time by giving Vodafone UK 30 days written notice." But there are thousands who forget to cancel and end up paying for a product they don't want.
The power of inertia selling is clear from the fact that 49% of those with a phone contract (and therefore susceptible to inertia selling) have the insurance, compared to 21% of pay-as-you-go customers.
What to do
But isn't it a good idea to hang onto the insurance anyway once you've bought it? Well, not necessarily - with just these few examples you'd be spending about £40 a month on insurance policies you don't want. For that you could have really valuable cover like income protection that would pay in the region of £1,500 a month until you retire if you're unable to work, or a chunky life insurance policy for £600,000 (assuming you are in your late 30s and relatively healthy).
So what can you do if you've fallen victim to these sneaky sales tactics? Unfortunately, aside from PPI, inertia selling isn't outlawed by the FSA. A spokesman says: "It's not exemplary practice, but it doesn't fall foul of the rules. We attacked PPI because it was a particularly strong issue."
So, for the time being, it's up to you to be careful. Be sure what you're applying for and what you're buying, double-check when you're buying over the phone or in person, and check your contract or receipt afterwards. Providers have to offer you a refund within 14 days.
So if you notice within that time that you've inadvertently bought insurance, simply call the customer service number. With Ryanair, you have to contact email@example.com, so make sure you send your email in time. Mark missed the deadline by two days and couldn't get a penny back.
Checking the deal only takes a few minutes, and it's well worth it. As Mark says: "This has left me with such a bad taste in my mouth that I'm determined I'll never fall for it again."
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.
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).
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.