There's good insurance and then there's evil insurance. We show you how to save money on both of them.
There are worse things in life than death. Have you ever spent an evening with an insurance salesman?
Woody Allen
My apologies to insurance salesmen, but I think Woody has got this one right. Insurance is known as the ultimate grudge purchase, a product that is sold rather than bought.
The good and the evil
The average household spends around £1,500 a year on insurance*. I thought our household would be above average but on closer inspection we spent around £900 in total last year.
Most of this expenditure goes on what I would call good insurance, namely the few big risks it is really worth insuring yourself against. Often it is competitively priced and usually it is sold a stand-alone product.
Evil insurance, on the other hand, is usually sold alongside something else. It's also usually for smaller risks and, in most cases, it's vastly overpriced compared to the cost of providing the cover.
So, you could argue that the key to saving money on insurance is simple. Firstly, rid yourself of evil insurance that you don't really need. Secondly, shop around for the best deals you can with respect to good insurance.
Avoiding evil insurance
Evil insurance policies are too numerous to mention; for example, last year a man from Ipswich insured himself against the trauma of seeing England getting knocked out of the World Cup!
Personally, I'm prepared to take that sort of risk. Payment protection insurance would be top of my bad insurance list -- and most other people's too, I suspect. Pet insurance, extended warranties and mobile phone insurance are also ones I tend to steer clear of. Although my cat is now giving me a nasty look.
Saving money on good insurance
I reckon there are five main types of good insurance:
1. Car
Over 70% of households have car insurance and, of course, it's a legal requirement. Sticking with the same insurer year after year is the number one mistake you can make here. It's one I'm guilty of but I intend to rectify that at my next renewal. I reckon I should be able to reduce my premium from just over £300 to around £180.
Read our 21 tips for cheaper car insurance.
2. Building and contents
More of us have contents cover than any other type of insurance (some 77%). It's something I know many people feel they can 'self insure' with. My view is that for around £100 a year it's good value for the £40,000 of cover we get. The same goes for buildings insurance.
Again I've been guilty of not shopping around here in the past. Last year we stayed put because we were able to get free annual travel insurance cover for Europe as part of the deal.
See how you can save on your buildings and contents insurance.
3. Life
Half of households have life insurance, paying an average of £800 a year*. So it's probably the area where you can save the most money. Premiums have been falling in recent years meaning it's worth revisiting any old policies you still have. Standard Life, for example, reckons the price of its life cover has fallen 32% in the past ten years.** People without dependants don't need it though, so it can be evil insurance for some.
Life insurance is a more complex area than motor or home insurance, particularly with respect to the type of cover that you need and the various ways it can pay out. Our in-depth downloadable guide is well worth reading before you start shopping around.
4. Income protection
Like life insurance, it's a more complex product than most, so read our article on income protection to see what issues you need to consider.
5. Travel
Buying annual travel cover is often the way to save the most money here, but very cheap policies are available these days that can cost less than a tenner for single trips. Check you're getting a similar level of cover compared against your usual insurer though and see our top travel cover tips.
> For quotes on all types of (good) insurance, visit the Fool's insurance centre.
The comments above are the opinions of the author only and do not represent advice specific to your circumstances.
* Data taken from ABI Key Facts document.
** Data provided by Standard Life.