10 must-have financial products
In these dark economic times, banks and insurers are keener than ever to get you to part with your cash for needless financial goods. So here are our 10 must-have products that won't leave you feeling short-changed.
Although you don't have to have a current account, managing your money without one is very tricky. Few employers pay cash, and you'll also find paying for things like utility bills and insurance problematic.
Beware of paying a monthly sum for a 'packaged account', however, as these are by and large a waste of money. The general rule is if you think you'll use three or more of the benefits it could be worth the money. Otherwise, it's unlikely to be.
2. TRAVEL INSURANCE
"Travel insurance is a must-have if you go abroad," says Peter Staddon, head of technical services at the British Insurance Brokers' Association.
"If you have an accident or fall ill on holiday your bills can be huge if you don't have travel insurance." Look for at least £1 million of medical cover on European policies, and double this if you're heading to the US.
Be sure to check the small print if you are going on a more exotic break, or if you are going to take part in any adventurous activities. Another top tip is to get insurance that covers you for scheduled airline failure, this means any flights that are not part of a package deal will be covered. (Package failures are already covered under the ATOL (Air Travel Organisers' Licensing) scheme.
3. CREDIT CARD
Although it's possible to run up significant debts with a credit card, Brian Brown, head of research at Defaqto, says your lifestyle could be seriously hampered without one. "Hotels often insist on a credit card and most car rental firms will ask for a credit card to secure a booking," he explains.
Also, credit cards can help build or repair your credit rating, but only if used responsibly and paid off on time each month. In addition credit cards can be useful for spreading the cost of large expensive items. If this is the way you are going to use your plastic look for a card with 0% interest on purchases.
Currently, two of the best deals on the market are from Tesco Bank and Sainsbury Finance. Both offer 0% on purchases for 13 and 12 months respectively and then resume to APRs of 16.9% and 15.9%.
4. CAR INSURANCE
If you've drive a car you're legally obliged to take out car insurance. As a minimum, you'll need third-party cover to pick up the tab if you injure someone or damage their property, and most motor insurers package this with fire and theft cover.
Comparison websites are a great tool for finding the best car insurance policy. Check out uswitch.com, comparethemarket.com and confused.com. But remember these are not comprehensive and some insurers are not included.
Many mortgage companies will insist you take out buildings insurance with your mortgage to protect the value of their security – your home – in the event of a fire or another disaster.
However, even if it's not a requirement or you don't have a mortgage, your home is likely to be one of your biggest assets, so it's worth insuring it.
This is not strictly a must-have product as there are plenty of other ways to save for your retirement, but with tax relief available on your contributions and possible contributions from your employer, it's well worth taking advantage of this savings vehicle.
Again, you can live without an ISA, but if you have any savings or investments the tax benefits of an ISA mean you'd be mad not to stick them in one.
Dying without a will means your estate will be divided according to the rules of intestacy – which won't always be how you intended. "A will lets you share your estate according to your wishes and can be useful for inheritance tax planning purposes," says Andrew Hagger, spokesperson for moneynet.co.uk. "Consider putting one in place as soon as you've built up any wealth."
You don't need to take out contents insurance, but the risk of going without could outweigh the cost. "You have to consider what would happen if the worst did happen – a fire or burglary, for example – and you had to replace all your possessions," says Brown. "For most people, it's well worth having."
Some contents insurance policies will also cover you when you're out and about. Check to see if your mobile phone or handbag can be included, for example, and cut back on paying extra to cover these items.
10. LIFE INSURANCE OR INCOME PROTECTION
Once you have financial dependants, such as a partner or child, it's important to protect them by taking out a life insurance plan that will provide them with a lump sum or regular income if you die. Premiums start from as little as £5 a month.
If you haven't any financial dependants, income protection may be a more appropriate product, enabling you to protect your income if you're unable to work due to an accident or ill health.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
The tax levied on the total value of your estate after you die. IHT has to be paid by the beneficiaries of your estate before they can receive any of the money from it. The money can’t be taken from the value of the estate _– it has to be paid before any money can be released. There is an IHT threshold – known as the “nil-rate band” – below which no tax is levied (£325,000 in 2011/12). Any amount above the nil-rate band is subject to tax at 40%. If your estate totals £600,000, there is no tax on the first £325,000; however your estate will pay 40% tax on the remaining £275,000, a total of £110,000. Prudent tax planning can reduce your IHT liability, so always consult a specialist solicitor.
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).
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
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.
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.
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.
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.