Insurance essentials versus the rip-offs!

Tougher times mean more of us are cutting back on insurance. So which insurance do you really need and which can you afford to lose?
When money is a little tight, one of the first things we tend to do is make cutbacks.
Fair enough, I hear you say. That's a pretty logical decision.
But there's just one problem with this scenario. Many of us are making cutbacks in the wrong places.
According to American Express Insurance Services, more than half of Britons who make regular financial product payments are considering stopping their premiums in order to make ends meet. Insurance products in particular, such as ID theft protection, health cover and travel insurance, are getting the old heave-ho.
But which insurance policies can you get away with cutting back on, and which ones are illegal or dangerous to sacrifice?
Insurance must-haves
Travel insurance
If you're planning a trip away this year, travel insurance is vital. Choose not to take out a policy and you could see a hefty bill being sent your way if you become seriously ill/your holiday is cancelled/your belongings are stolen. If you need further proof of this, just consider the recent outbreak of swine flu and all those flight cancellations!
For tips on how to choose the correct travel cover, read Pick the right travel insurance.
Car insurance
If you own a car, you need to get it insured. That's not just my opinion, it's the law. If you get caught driving without insurance, you'll get points on your licence and a fine.
However, if you are on a really strict budget, you could consider third party, fire and theft car insurance rather than comprehensive cover, as this will be cheaper - and still legal. Just make sure you understand exactly how little cover this offers you. You can read more about this in Ten ways to cut your car insurance costs.
Life insurance
If you have financial dependents, such as children, you need life insurance to protect them financially - it's as simple as that. Similarly, if you have a joint mortgage, you should protect your life to ensure your partner can cope with the mortgage if something happened to you.
If you already have life cover and you decide to stop your payments, it could prove a very costly mistake. That's because if you take out a policy again at a later date, your premiums are likely to be much higher - simply because you're older and your health may have deteriorated.
Stuck in the middle
Home insurance
Home insurance falls into two categories - buildings insurance and contents insurance. In some cases it's a must, in others it's not so necessary.
If you have a mortgage, you'll need buildings insurance - it's a legal requirement.
But it's worth noting that, if you have a leasehold flat, the freeholder will be responsible for taking it out (although you'll probably still have to pay for it, one way or another).
Similarly, if you rent, you don't need buildings insurance.
As for contents insurance, there's no legal obligation to take out a policy. However, in my opinion, it should be a priority whether you rent or own your home. After all, if you were burgled or your belongings were destroyed in a fire, you'd have to fork out to replace everything yourself - and the costs of this could far outweigh the cost of paying for insurance.
Private medical insurance
If you're highly sporty and prone to accidents and visits to the physio, private medical insurance can really pay off.
But if you never make a claim, you're simply pouring money down the drain. What's more, you're likely to find a range of conditions won't even be covered in your policy - such as pre-existing conditions, incurable or lifelong conditions and mental health problems.
Personally, I'm not convinced PMI is worth it unless you can get it for free/a small fee through your employer.
Insurance rip-offs
Pet insurance
Many people will do anything to protect their pets, including paying out vast amounts of money for pet insurance.
But if you never make a claim, you've wasted a lot of money. So don't make pet insurance a priority - I think you'd be better off putting any spare change in a savings account which could then be used in the event of a pet emergency.
ID theft protection
Identity fraud is becoming an increasing concern for many of us. Having your identity stolen can be an extremely stressful experience, so it's no wonder that more and more people are taking out ID theft protection.
But given that this insurance does not protect against any financial loss you might suffer as a result of ID theft, I'm not entirely sure what the point of it is. In fact, here at lovemoney.com, we think it's one of the most expensive rip-offs you'll ever come across. A better option might be to simply take preventative measures such as the ones mentioned in Ten ways to avoid becoming a victim of ID fraud.
Mobile phone insurance
This is another insurance policy I think you can do without. Policies can be expensive and many come with a range of exclusions so even if you think you're covered, you might not be.
Personally, I think you're better off taking extra care with your mobile phone and keeping an old one as a spare, instead of wasting money on this insurance scam.
Decisions decisions
When it comes to insurance, everyone will have their own opinions and experiences. And of course, deciding which policies to cut back on is ultimately up to you.
But before you cancel any insurance policy, it's worth investigating whether you can make savings elsewhere. Check out our money savings tips for ideas.
And finally, whatever you decide, please don't scrimp on the essentials. Many insurance policies really are important and going without is not a risk worth taking.
Compare all sorts of insurance with lovemoney.com
More: Protect your family from cancer | The best car insurance deals for women | Beware this insurance loop-hole!
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Comments
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And how many of these people who think that they are being noble in wasting so much money on animals have insurance to protect their families in the event that they become ill or disabled themselves? Very few, I suspect. Odd priorities, some people ...
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Im lucky enough to own 2 cats and a horse. My cats are both 13 years old and Ive had them insured their whole lives. I have never made a claim on either of them and they have never had any problems their whole lives. They are both outdoor cats too. However, I would never ever consider cancelling my pet insurance. Thats just plain stupid. People who have pets without insurance are just so irresponsible. As pointed out, not many people would be disciplined enough to have potentially a few thousand pounds available in case of illness to their pet. How people can have healthy pets put to sleep because of a lack of money? I totally agree with Vet. Pets should be seen as a member of the family. How many people would have their children put to sleep if they became ill? People who think like that just make me sick!!!
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I bet the insurance dos not cover old animals, like car insurance does not cover young drivers. Insurance companies are like bookmakers, they always win and you are the punter. I have always paid for annual injections for the cat and he is 12, i do not pay insurance but in the past have paid to have a cat looked at , all sorts of treatment and she still had to be put down, and I was charged £50 for that final privilige.
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21 May 2009