Can you have too much insurance?
All too often we're told we are woefully under-insured, that if things go wrong we have no safety net and could be left seriously out of pocket. But if you've got a packaged bank account, home insurance and/or have splashed out on insurance for specific items such as your mobile phone or laptop, there's a good chance you've actually got too much insurance on your possessions.
A recent study from NFU Mutual in conjunction with Defaqto revealed Britons are wasting £221 million each year on policies that either duplicate or overlap with their existing insurance plans.
This is because double the insurance does not mean double the payout - by paying for policies you won't be able to claim on, you are pouring money down the drain.
One of the fundamental principles of insurance is that it only indemnifies you against your loss; you shouldn't be able to profit from it, explains Graeme Trudgill, executive director at the British Insurance Brokers Association. "This prevents fraud, so if you lose a pair of sunglasses you can't claim off several different travel policies."
You may also find that there is a 'contribution' clause in the terms and conditions of your policy which essentially allows one insurer to claim part of the payout from another insurer if it is insuring the same item.
So even though you will only receive one payout, two insurers would have regarded you as having made a claim. Depending on the nature of the claim and the policies involved, this could see both sets of premiums rise the following year and could have a negative impact on any no-claims bonuses.
There are numerous areas where you might have duplicated your insurance cover. In most cases, this is because we don't fully understand the policies we already have and what exactly they cover.
Andrew Boldt, managing director of specialist broker Insurance Tailors, points to flat owners who unwittingly purchase buildings cover. "One of the most common examples of dual insurance is when flat owners buy their own buildings insurance, when it is normal - and certainly best practice - for there to be a single block insurance policy in place to cover the bricks and mortar of the entire building. This often happens at the point of purchase, when the buyer is under pressure to prove insurance is in place before a mortgage lender will release funds for the exchange or completion to occur."
So, if you live in a communal building, there is a good chance you only need to buy a contents insurance policy.
Further problems arise because there are so many different policies that provide cover for our possessions. For example, there are now numerous insurers offering to protect gadgets, such as our phones, laptops and tablets. You might have bought cover direct from the retailer who sold you the gadget or you may have shopped around for a specialist insurer. However, in many cases your gadgets are already protected thanks to your home contents insurance or if you pay a monthly fee for your current account, by a deal set up by your bank.
The same can happen when we buy breakdown cover - not only might this type of policy be included with your bank account, it may be offered as part of a comprehensive motor policy. Similarly, your bank might also be giving you travel insurance or home emergency cover, something you may well have purchased yourself from a supplier such as British Gas or it might be covered by your home insurance.
With many products, it's possible you've not just duplicated cover, you've triplicated it.
In other areas, cover might not be duplicated, but there could be a degree of overlap that can still end up costing us. Trudgill says: "One of the biggest areas for crossover is where we pay an extra £30 or so on our contents insurance to add on possessions covered outside the home. You then buy travel insurance that includes baggage cover." Defaqto reckons that holidaymakers can typically save £20 by asking for this redundant cover to be removed from their travel insurance.
Another example is mobile phone insurance, which may not offer such great value for money if you also have a home insurance policy that covers it for loss or accidental damage. Unauthorised calls might not be covered, but these are typically not a problem once you've reported the loss.
Wasting a few pounds may not seem a big deal, but Defaqto reckons consumers could save as much as £260 a year by reviewing their policies to ensure they aren't doubling up. The study considered home, mobile, motor, breakdown, emergency and travel cover but the savings could be even higher if you are also forking out for legal cover, specialist cover for gardens or sports equipment and bikes.
Packaged current accounts
In many cases this duplication and overlapping comes as a result of packaged current accounts. Kevin Pratt, insurance expert at MoneySupermarket, says: "Packaged bank accounts often include benefits such as gadget, travel insurance or breakdown cover to justify the monthly fee." But, he warns, just because you have these benefits, it doesn't necessarily follow that you don't need to buy any more insurance or that you should cancel existing plans.
So what can you do to ensure you aren't wasting money on redundant insurance? Go through all your policies - both those you have purchased yourself and those that might have come with your current account - and check for areas of duplication or overlap. We tend not to pay much attention to policies we haven't selected ourselves so if the paperwork has gone astray, call your bank and ask for the relevant details.
Although switching bank accounts might be more hassle than cancelling a couple of insurance plans, it might be the more sensible option, according to Pratt, as in many cases the rather generic cover offered to you by your bank may not actually meet your needs.
"Always check cover is extensive enough," advises Pratt. "Does your bank's travel insurance extend to your family?" for example. "Does it cover where you want to go? You might find some are just limited to Europe, and some European plans might not cover Turkey."
Older people may also struggle to claim on a travel insurance policy provided by a bank account, adds Trudgill. "Some packaged account travel insurance cuts off at certain ages - at retirement for example, or it may not cover any pre-existing medical conditions."
Specialist mobile phone policies - either those you have bought yourself or have been provided for your bank may also not provide the level of cover you expect and, in many cases, the cover provided by the possessions away from home cover (sold as a bolt-on to your contents insurance) will be superior.
A recent study by the Financial Conduct Authority revealed there is often a significant mismatch between the cover people believe their mobile phone policy provides and what it actually offers. If you lose your mobile, for example, it may not pay out if you lost it in a public place - if you left it in a hotel or taxi, for example. However, good home insurers, including LV= and Aviva, would both pay out in this instance if you had possessions cover included on your policy.
So while cancelling redundant policies is a great way to save yourself some cash, take the time to make sure you're ditching the dud deals and keeping the best.
The over-insurance checklist
- Do you have a policy with your bank account and does it meet your needs?
- Are your possessions and money already covered by your home insurance?
- Is scheduled airline failure covered by your credit card?
HOME EMERGENCY COVER
- Are emergencies, such as your boiler breaking down, covered by your home insurance?
- Do you already have cover with your bank account?
- Is it provided as standard with your car insurance policy?
- Is cover offered by your packaged bank account?
MOBILE PHONE/GADGET COVER
- Is it covered by your packaged bank account?
- Loss or damage to handsets might be covered by your home insurance.
- Unauthorised calls might be covered by your telecoms supplier once you have reported the phone missing.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
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.