Are you paying for pointless insurance?
The recession has led many people to consider cutting back on insurance policies, some of which you should think twice about cancelling. Laura Starkey looks at which insurances are essential - and identifies the cover that could be an expensive rip-off...
When money is tight, paying for some forms of insurance can feel like a waste of precious cash. After all, you'll only ever get your money back if something goes wrong - and, right now, perhaps you feel it would be better kept in your pocket.
Unfortunately, it seems some people have been quick to cancel cover that might offer them vital protection in the event of a crisis. According to research from Sainsbury's Finance, over 400,000 people may have scrapped their home contents insurance policies between April 2008 and April 2009, with a further 816,000 having cancelled or applied to reduce their level of life insurance.
In this article, I'll separate my insurance essentials from the costly cover I think most people could live without.
Insurance essentials...
Car insurance
If you drive a vehicle, it is a legal requirement that you have insurance. If you don't, you could face prosecution, a hefty fine and a driving ban. However, if you are looking to cut costs you could opt for third party, fire and theft cover instead of a fully comprehensive policy. It's also crucial to make sure you shop around when it's time to renew your car insurance, as it's unlikely your existing provider will offer you the best possible deal.
Life insurance
In my opinion, life insurance is a crucial product for anyone with financial dependents. It will help ensure your family is provided for and your debts are paid off should you pass away.
However, life insurance may not be the best form of protection for you - especially if you don't have a partner or children who rely on your income.
In this case income protection insurance might be more suitable, but always research your options, consider your individual needs and seek advice before committing to a policy.
Travel insurance
I think travel insurance is an essential form of cover for anyone going on holiday. If you jet off without putting cover in place, you'll have no protection should you lose your luggage, fall victim to crime or become ill while overseas.
This could put you at serious financial risk. The cost of medical treatment abroad, for example, could be tens of thousands of pounds!
Luckily, travel insurance is usually very affordable; single trip cover for two people could cost as little as £8.50 per person* for a week.
Home insurance
I also believe it's unwise to go without home buildings and/or contents insurance (you'll only need buildings insurance if you're a homeowner).
Consider how much it could cost you to make substantial repairs to your home, or rebuild it completely if it was seriously damaged by fire or flooding. Could you afford to replace your possessions if they were stolen or destroyed?
If you're struggling to afford your home insurance premiums, I'd recommend comparing a range of policies to see if you could save money before cancelling your cover completely.
Pointless policies...
Extended warranties
When you buy an item such as a television, cooker or DVD player, you may be offered an extended warranty of between two and five years by the retailer. This is a form of 'insurance' that guarantees you a repair or replacement should your item break down within the period covered.
However, most extended warranties will only cover mechanical faults; few are likely to pay out if your item is accidentally damaged or stops working as a result of general wear and tear.
What's more, a five year extended warranty from your retailer may cost almost as much as the goods you are purchasing! In some cases, companies make more money on selling extended warranties for products than they do on the products themselves.
Cover like this seems expensive when you consider that, whenever you buy something, you have legal rights in place which mean it must last a reasonable amount of time.
Accidental death insurance
Accidental death insurance will pay out a lump sum upon your death - provided (you guessed it!) that you die as the result of an accident.
If you die of natural causes, such as old age or illness, your financial dependents will get nothing.
This cover offers far less protection than life insurance, which will provide a payout for your loved ones no matter how you pass away.
ID fraud cover
In my view, identity (ID) fraud cover is usually pretty useless.
Most policies will not cover any financial losses you may suffer as the result of fraud - which might make you wonder what the point of this insurance is!
Regardless of whether you have ID insurance, as long as you can prove you did not act negligently (for example, by leaving details of your PIN in the same wallet as your credit card) your bank or credit card provider should pay you back any money you lose through fraud.
The other 'benefits' of this insurance are also easily obtained elsewhere, for less. For example, most policies offer to alert you when there is a change to your credit report - but you can regularly check this yourself, for a fee of just £2!
Gadget, mobile phone and handbag insurance
Finally, specialist insurances such as gadget, mobile phone and handbag insurance have become popular over the past few years - but do you really need additional cover for these items?
An 'all risk' home insurance policy will protect your handbag, iPod and mobile phone when you take them out of the house, so check that you don't already have this in place before shelling out.
If you don't have an 'all risk' policy, compare the price of upgrading your home insurance with the cost of additional cover from another provider. You may find paying a little more for your home contents cover is the cheapest choice.
* I used BeatThatQuote.com's travel insurance comparison tool to search for single tip cover for a couple in their mid twenties (with no pre-existing medical conditions) who were travelling to Spain on holiday.
**Articles featured on BeatThatQuote.com are for information purposes only and reflect the views of individual writers. Articles are not, and should not be considered as, financial advice. BeatThatQuote.com strongly encourages our readers not to rely solely on information contained within this article/our website, but to conduct their own research and seek independent advice about the financial products they purchase.**
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