Three rip-off insurance products to avoid
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 don't you need? We look at some of the rip-off insurance products to avoid.
THE ONES TO AVOID
MOBILE PHONE COVER
As mobile phones have got smarter, they've become more expensive too. And given the high chance of damaging them, losing them or having yours stolen, it's understandable why so many of us are tempted to insure our handsets.
But while it's a good idea to have some cover, it's more cost-effective to insure your phone through home contents insurance than standalone policies, which can cost £180 a year. Just be aware that repeated claims could lead to an increase in your contents insurance premiums.
These usually require a small monthly payment of, say, £5, to cover the breakage of household items such as washing machines and TVs. It is easy to end up paying out more in monthly premiums than the item would cost to replace over time.
For example, a five-year extended warranty on a washing machine with a small chance of needing repair in the first five years could cost £170, when the initial price of the appliance was only £260.
IDENTITY THEFT AND CREDIT CARD INSURANCE
Sold alongside credit cards, card protection policies cost around £30 a year and identity theft insurance, about £70. But these policies usually offer customers little more protection than you already get free from providers under the Banking Code and Consumer Credit Act.
For example, Experian offers identity protection insurance for £6.99 a month, but all you get is a credit report monitoring and assistance if your identity is stolen - all of which you can get free.
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.
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.
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.
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.
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.
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.