Some insurances just aren't worth the money you pay. Here are five of them, along with some tips on what you should do about it.
In so many ways, insurance works very well. No seriously! OK, the customer service can leave a lot to be desired and it tends to get a bit messy when it gets entangled in the legal industry. However, there's a lot of competition to keep prices down and to ensure that there aren't too many onerous exclusions.
It's not all just about comparing insurance quotes though. Sometimes it does go wrong. This is usually when you buy insurance as an extra on top of other products. Here are a few nasties to watch out for.
1. Legal cover sold with car insurance
If you're injured in a motor accident you can walk (or hobble) into many solicitors and get legal cover on a no win, no fee basis. This is precisely what you get when you invoke your legal expenses cover, so we have to ask why we pay for it.
Yet we shouldn't forget that these policies save us the bother of finding a solicitor, and they cover other losses as well. This might include the policy excess, loss of earnings, plus any reasonable travel expenses.
The problem is, it's ludicrously over-priced! The cost to the insurer or broker is about £1 or £2 at most. Some insurers pay nothing at all, so when they charge us £15 to £40 it's all pure profit!
What you should do is haggle. After you get your quote sans legal cover, call up and say that it's not quite worth your while switching from your old provider, but if they throw in legal cover for free, you'll switch straight away. It does work!
For more tips seeCheaper Car insurance In Ten Steps.
2. Legal cover sold with household insurance
You can also get legal cover on buildings or contents insurance, but I've seen some really naff policies. For example, you think you're covered for property boundary or employment disputes, but often you're not.
In my opinion, it's most useful for public liability cover, i.e. if you injure someone or damage their property and they sue you, you can be insured for, say, £1 or £2 million. Beats paying for it yourself!
To ensure you've got the cover you're looking for, e.g. disputes with neighbours, write a list and ask the provider. Also, try your luck! The mark-up isn't as great with these policies as it is with legal expenses on car insurance, but you could always attempt to negotiate free legal anyway.
3. Mobile phone insurance
This has a ridiculous mark-up too. You might pay £6 per month, which is £72 per year, but, if mobiles cost, say, about £120, you're paying more than ½ the cost of your mobile every year. Therefore, for the cost of this insurance to be fair, the average person would have to make a successful claim roughly once every two years. I reckon that's highly unlikely and, as a result, I never insure my mobile.
However, if you are (very) clumsy or (very) forgetful and if losing your phone is precisely the sort of thing you'd do, then maybe you should get this insurance, but don't buy through your mobile phone company. Instead, search the Web for stand-alone providers. They're likely to be cheaper, and they sometimes offer better cover, e.g. cover for water damage, which not all mobile phone companies include in their standard policies.
4. Payment protection insurance on loans, mortgages, credit cards and so on
We at The Fool have a big problem with PPI, as you'll see here and here, so I don't think it's necessary to go into this too much! However, I think that when banks offer to protect your overdraft, despite the fact you've never used it, you know there must be something fishy about this insurance.
If you feel you must get some cover, consider income protection or stand-alone PPI providers. You can read about both in Two Ways To Shotgun Your Debts And Income.
5. Insurances with your mortgage
Mortgage companies try and cross sell both household and life insurance. Problem is, they find it so easy to do this that they don't bother making their prices competitive. That's why it's much cheaper to get it all separately.
You should also consider whether you actually need life insurance to protect your mortgage. If you have no dependants and you don't care about what happens to the house after you die, you don't need to protect it.
Don't get lumbered with overpriced insurance -- compare insurance quotesthrough The Fool.