Overpaying for insurance is a total waste of money. We reveal lots of ways to enjoy superior protection for lower premiums.
One saying which really annoys me is "insurance is dead money" (although this is literally true when it comes to payouts from life insurance!).
During my fifteen-year career in insurance and banking, I witnessed a constant stream of people who fell on hard times and were forced to rely on insurance policies to bail them out of trouble.
Thus, unlike most members of the public, I've seen both sides of the insurance equation. Indeed, I like to think that I have an objective opinion of insurance, as I've seen both its good side and the ridiculous rip-offs which sneaky firms try to sell us!
Of course, insurance has grown to become an essential part of modern life. In fact, most national and international commerce would struggle to survive without the everyday transfers of risk which insurance provides. For example, I can't imagine that air travel would ever have taken off without insurance to cover the loss of aircraft, cargo and passengers.
Thus, I see insurance as an essential piece of a jigsaw which, when assembled, provides a balanced approach to financial fitness. However, as with all purchases, it makes no sense to pay more than you should for this protection, so read the following ten tips on getting more cover for less cash:
1.Life insurance: buy "his and hers" policies
One of the commonest mistakes which people make when buying life insurance is to buy a single policy to cover two or more people, known as a "joint life, first death" policy. For example, when buying life insurance to pay off your mortgage debt if one of you dies, you would normally buy a policy of this kind.
However, it makes far more sense to pay a few extra pounds each month and buy two individual policies with two separate payouts. Not only does this potentially double your cover, but it also stops the surviving partner from being uninsured. In addition, it makes things easier to unravel if you later separate, because joint policies aren't easily divided in two!
For low-cost life insurance, visit the Fool's insurance centre!
2. Life insurance: pension term assurance (PTA)
Whether you pay tax or not, you can get a government subsidy towards the cost of your life insurance. This comes in the form of the tax relief given to contributions into personal or Stakeholder pensions. As I explained here, by buying a life insurance inside a pension (known as pension term assurance), you can dramatically cut the cost of protecting your life. This cover is particularly attractive to higher-rate taxpayers, who effectively get a 40% discount off their premiums!
You'll find nine more mistakes to avoid when buying life insurance in Oops, You Bought The Wrong Protection and More Buying Blunders To Beware Of.
3. Income protection insurance
One form of cover which is essential for working people is income protection, which provides cover against long-term sickness. If you're unable to work for an extended period and don't get generous sick pay from your employer, then buy income protection to provide you with monthly benefits until you can return to work. In LookAfter Your Greatest Asset, I list ten tips to help you to find the perfect policy to protect your earning power.
4. Car insurance
If you drive a car on public roads, then you're obliged to have motor insurance, with third-party cover being the minimum legal requirement. Alas, failing to shop around for better-value cover at renewal time could mean paying up to £400 a year too much for your car insurance. So, ignore that renewal notice and, instead, read these ten tips on finding cheaper cover.
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5. Breakdown cover
While we're on the subject of car cover, you'd be mad to pay £80 to £150 a year to The AA, Britannia Rescue, Green Flag or the RAC for breakdown cover, when you can buy Best Buy "pay and claim" roadside recovery cover from AutoAid for just £32 a year!
6. Home insurance (buildings and contents)
It's estimated that only a third of policyholders shops around before renewing home insurance each year. This is plain bonkers, because you can save an average of £11 a month by seeking out cheaper cover, according to insurance broker The AA. To get you started, read these ten tips on pruning your premiums down to size.
Get low-cost home insurance via the Fool!
7. One to avoid: payment protection insurance (PPI)
Payment protection insurance meets the monthly repayments on a credit card, mortgage or personal loan if you are unable to work due to an accident, sickness or unemployment. Alas, about 95% of PPI policies are sold by banks and other lenders, which charge as much as they possibly can for this cover. Indeed, the commissions paid on these policies can exceed 80% to 90%, which leaves precious little left over for any unfortunate claimants!
If you need this peace of mind, don't buy PPI from any bank or lender. Instead, check out the Best Buy cover (for card, loans, mortgages and other monthly commitments) from Fool partner SecurityFirst and other stand-alone providers.
8. Travel insurance
Each year, around 500,000 Brits without travel insurance run into some kind of trouble overseas. The problems encountered can range from having a purse or wallet stolen to being involved in a serious road traffic accident. To be honest, if you're going abroad for more than a single day, then you'd be wise to find a low-cost Best Buy travel insurance policy to cover your behind. One word of warning: don't buy this protection from travel agents or tour operators, because they rip you off big-time!
Get terrific travel insurance from the Fool's insurance centre!
9. Another one to avoid: boiler/central heating cover
With wintry weather on the way, it makes sense to have your boiler and central heating checked out before the big freeze really sets in. (By the way, these ten tips will help you to prepare your home for colder weather.)
However, millions of homeowners needlessly waste hundreds of pounds a year buying boiler/heating breakdown cover which, as a rule, is seriously overpriced. Nevertheless, British Gas recently began hiking the cost of its HomeCare plans by up to 60%. Even worse, I've read dozens of complaints from customers who've been let down by these service plans, which suggests that this is a Don't Buy product all round!
Personally, I'd rather self-insure by putting aside some spare cash in a high-interest savings account to pay for household emergencies.
10.Private medical insurance (PMI)
Millions of us buy private medical insurance in order to avoid NHS waiting lists, get treatment for non-critical conditions, or simply to enjoy a private room and better meals. However, PMI isn't cheap, with premiums adding up to hundreds or even thousands of pounds a year. One low-cost, budget alternative is a Healthcare Cash Plan (HCP), which provides payouts towards bills for dental, medical, optical and alternative-medicine treatment. As I explained in Policies That Really Pay Off, Best Buy HCPs can pay out seven times what they cost each year!
More: Use the Fool to find first-class car insurance, home insurance, life insurance and travel insurance!