Buying Insurance Cover
An essential guide to obtaining
best value for money insurance.
Please note; All of the advice on this page is intended
to assist you in getting best value for money on insurance policies.
While there is no intent to deceive, no gauranatee as to correctness is
given and any insurance policy you take out is a matter between you and
the insurance company alone.
Most of us buy insurance for various things, but do you know how
to get
best value for money? The two critical points are these;
Buy the correct amount of
cover, not too little and not too much.
Over-insurance is common in Motor, Buildings and Legal cover, while
under insurance is rife in Contents and Illness insurance. Some
insurance is such poor value you'd probably be better off not buying it
at all.
Pay
the right price for the insurance you buy. The are many insurance
companies, and they charge radically different prices for the same
products. Find out how to avoid the expensive ones.
Over Insurance
Over insurance means having more cover than you need, and this can
arise because you cover the same risk with more than one policy, or
because your policy covers more than you need.
It is very common for all sorts of policies to come with legal cover which can help you claim
for uninsured losses or disuputes arsising from insurance. You could
easily have bought this type of cover along with your motor and home
policies. Most of these policies cover risks on all property, not just
that being insured so you could easily have three policies all covering
the same risk. Make sure you don't buy these again on your next renewal
- you may want to consider whether this type of cover is needed at all
- would you ever have chosen it if it wasn't bundled with other
insurance? Have you ever claimed on it?.
Another over insurance is on the buildings
insurance for your home. Many insurance companies will propose a
value equal to the purchase price as an appropriate level of cover. In
the UK the value of the land can easily make up 50% of the purchase
cost and you don't need to cover this since you wouldn't lose it even
in a fire that destroys your house completely. Rebuilding cost is all
you need to cover.
Many people insure their cars with comprehensive cover, which means
that the insurer will pay for damage to your own vehicle as well as
damage to others if you cause an accident. Remember, if someone else
causes the accident you're claiming off their cover (and third party
cover is compulsory in nearly all countries) so comprehensive doesn't
affect this. The alternative is to buy Third Pary Fire and Theft
(TPF&T)
which will save about 40% on your insurance cover. This could easily
amount to £200 per year, so if your car is only worth a few
thousand the multiple you can earn is poor even if you write off your
car totally every 10 years (which would be extremely unlikely). Think
about TPF&T on cars worth up to £4000. Remember you can always take a loan to
cover repairs if you need to, then pay it off gradually - its just like
paying insurance only retrospectively and only when you have actual
damage to pay for - effectivel this is self insurance.
Under
Insurance
Under insurance means you have less cover than you need, and this
usually occurs where you have under estimated the risk or the value of
what you're insuring.
Househould Contents insurance can easily be under value, because most
contents policies are new-for-old. This means that if you have a flood,
and your carpets are lost, you get the cost of new carpets even if the
ones you lost came free with the house. And if you lose a 10 year old
TV, you get the cost of a (similar) new one. So the amount of cover you
need is nothing to do with how much you've spent, but how much it would
cost to replace everything you have with new. Think about that -
everything you have. Every book, CD, all clothes, bedding, curtains,
carpets, furniture, cups, plates, glasses, hifi,
cameras, telephones, toys - EVERYTHING.
If you are underinsured and you
make a claim, the insurer can scale down the payout. For instance,
imagine
you insure for £20,000 and you make a claim for £1000. The
insurer can reassess the value of what you have covered - say they
decide the correct value is £40,000 they can pay out 50% of any
claim, that's just £500 on your £1000 claim. Some companies
will offer very low premiuns for contents insurance, but always ask
what the value of cover is - it will probably be low too. The best
contents
cover is unlimited, so that you don't have to work out the actual value
and you can't be under-insured.
If you want to get some idea of how much cover you need, try valuing
every item in just one room. Every single item, and you'll see two
things - first, its hard to do and second, it comes to a lot of money.
Illness insurance. Many people don't have any insurance to cover them
if they are long-term ill. You may have life insurance to help your
family if you die, but what if you don't die, but you are unable to
work? No pension, no life insurance payout, no salary, all the same
bills to pay. You just have state benefits to live on, and that will be
less than your salary was by a big margin. There are two standard ways
to cover this;
Critical Illness Cover. This insurance pays out a lump sum on the
diagnosis of various conditions - the seven core ones being cancer,
coronary artery bypass, heart attack, kidney failure, major organ
transplant, multiple sclerosis and stroke. The bigger the payout you
want, the bigger the premium.
Permanent Health Insurance. This one pays out a monthly income to
replace your salary if you are unable to work due to ill health, caused
by illness or accident. You can only cover actual earnings, so if you
earn £1000 per month you can't take our cover for £2000.
Paying the
right amount for the
insurance you choose
Shop Around
Of course this is the golden rule. If you're taking out insurance
you've never had before, you need to call a fair few (6-10) insurers to
be sure you've found the best price. Be sure you understand what cover
is being offered by each so its a proper comparison. Some may include
extra's you don't really want or need, so you can do a simple price
comparison with others, but if an important level of cover is
different, take that into account when making the final choice.
You may often find that insurance brokers (companies who sell for many
insurers and take a commission) will be more expensive than dealing
direct with insurance companies themselves. This used to take a lot
longer to do since you have to make one call to each, although now
there are plenty of on-line systems that check all the main insurers
for you. You may see some companies claiming 'we guarantee to be the
cheapest'. You certainly can't go ahead with their price on the
assumption their claim is true. The 'guarantee' just means they'll give
you some money back if you find a cheaper insurer later - so in fact
they can maintain this claim even if they are the most expensive. A
good insurance comparison service can be found at MoneyExtra, but there
are plenty more. Type 'insurance comparison' into Google.
Ask Your
Existing Company
If you already have insurance, and you get the renewal notice, its
always worth checking the market to see if useful savings can be had
(an internet search is ideal for this). Many insurance companies offer
you a good deal in the first year, but push up the price the following
year. If you do
find a cheaper quote, phone your existing company and tell them -
many will match the price or come down a bit. Another trick is to try
getting more than one insurance from the same company as many will give
you a discount for doing this - so always try companies you already use
and tell them what you're
doing.
Issues
with particular types of
insurance.
Motor
Understand your level of cover.
TPF&T = third party fire and theft. Pays out on everything except
damage to your own car caused yourself (if its caused by someone else,
you claim from their insurance). Comprehensive, like TPFT but also pays
out for damage to your own car - can be much more
expensive.
No Claim Discount.
Once you've held insurance claim free for a year, your next year's
premium will normally get you 30% discount. 2yrs 40%, 3yrs 50%, 4yrs
60% and 5 years 65% - these percentages may vary a little from one
insurer to another. If you make a claim (EVEN IF IT WASN'T YOUR FAULT)
you lose two years no claim discount. You can add protection to your
policy for about an extra 10%, which means you don't lose your bonus if
you claim. As soon as you're up to full bonus, this is well worth
taking.
Rememeber specialist insurers. If you have a classic car, you will find
a dedicated classic car insurer will give you a better price. If you
need commercial or
van insurance,
try Quotea
Travel
Almost certainly the most expensive insurance of this type is that sold
in holiday
brochures. By far a better bet is to do an on-line search - eg onlyinsurance.co.uk. You may
find your travel agent warns you against this, saying the brochure
insurance is far better and you take a big risk if you buy anywhere
else. This is quite untrue and in England, its illegal for them to say
so - if it happens to you report the agent to trading standards. Of
course, not all policy's are the same, and you should take a look at
the cover being offered. Most offer very big sums for public liability,
because its low risk. The important items are the ones you would really
want in the event you needed it (like cost of medical
treatment/emergency flights home)
and cover for lost/delayed baggage and delayed flights.
Home
Many home insurers will offer you the chance to take accidental damage
or 'all risks' cover. This sounds attractive, but it will cost more and
the opportunities to claim are few and far between - think, if you had
this type of cover for the last 10 years, would you had any claims?
Household
Various insurance is on offer these days for problems with plumbing,
heating, electrics, drainage and so on. Your utility providers will
probably all offer you cover (tucked in the envelope with the bill).
These are generally very high cost compared to the claim potential. You
can do far better by buying a coverall policy that covers all of these
risks in one policy - often called home emergencies cover. Ask you
household building or contents insurer about this.
Extended Warranty
Extended warranties are often offered when you buy electrical goods.
Really, these are just insurance policies - and very expensive ones at
that. For example, a washing was seen on sale in the UK for £415.
This includes one year standard warranty. To extend it for a further
three years was on offer at £120. You'd be fairly unlucky to have
a problem in years 2 to 4, and very very unlucky if it cost more than
£120 to fix. When it comes to electrical goods like TVs and
hi-fi's, which are essentially very reliable, these warranties are even
less attractive - leave well alone.