What to look for when buying insurance

Mountaineer taking a photo © iStock
The cheap deals may exclude selfie cover

When you’re shopping for an insurance policy – be it to cover your car, your holiday, your pet or your home – it’s tempting to go for the cheapest option available. But it’s worth digging a little deeper – often the lowest-priced policy is cheap for a reason. There are several factors to consider. Firstly, remember that cover comes in a range of different types – so make sure you are comparing like with like, and that you are getting the cover you need. For example, with pet insurance, there are several options, from “accident-only” to “lifetime cover”. An accident-only policy isn’t terribly useful – most pet insurance claims are for illness rather than accident – and lifetime cover may be riddled with limitations.

Next, if you shop for insurance on a comparison site, as most of us do these days, don’t always settle on the cheapest option. You will often find that the level of cover on offer is far lower than you’ll get with a marginally more expensive policy. For example, some cheap travel insurance policies specifically exclude the electronic items you are most likely to lose or break on holiday, such as your mobile phone or camera. Equally, don’t just scroll down the page until you get to the only name you recognise. While going with a familiar brand may give you peace of mind, it could well cost you, with many of the big names charging a premium for their reputation.

If you’re still not happy with the premiums you’ve been quoted, be wary of the temptation to lower this by increasing the level of excess you’re willing to pay. Taken to extremes, this may leave you with worthless insurance. It’s possible to have a voluntary excess of up to £1,000 with car insurance, for example, but with an excess that high would you ever actually make a claim? If you do have years of no-claims bonus stored up, and plenty of savings, a high excess could indeed save you money, but make sure you can afford to pay the extra cash if you need to make a claim.

Although all this research can sound tiresome, there are tools that can help you to make a decision. You might see a “Defaqto rating” when researching policies. This is an independent rating of where a product sits in the market, based on the quality and comprehensiveness of its features. It’s also a good idea to look at consumer reviews and star ratings for services (which are often included on comparison sites), so you can see which companies are going to treat you well if you need to make a claim. But be aware that comparison sites are not a one-stop shop. Each site has deals with different companies, so will give you different results. Enter your details into two or three comparison sites to make sure you are getting the best possible deal.

Whether you are estimating the value of your house, or how much your skis are worth, try to be as accurate as possible. Go too low and you could find that you are left short when you make a claim, but guess too high and you are paying for more cover than you need. A classic mistake people make when taking out buildings insurance is to assume that the rebuild value of their home is the same as its market value. It isn’t – it tends to be much lower because you are valuing simply the bricks, mortar and labour needed to build your home, not the resale value which includes added factors such as location and local schools.

Finally, you will save money if you pay for your insurance policy annually rather than monthly. The interest rates when spreading the cost are usually astronomical, with an annualised 20% around the norm. If paying upfront isn’t an option, consider getting a 0% credit card and putting all your insurance policies on it. Then you can spread the cost for free (as long as you pay off the credit card bills promptly).

In the news this week…

• As of 6 April, people who lose their partner will face the additional blow of having their bereavement payments cut, says Ali Hussain in The Times. Under the current system, if you lose your husband, wife, or civil partner, payments of up to £487.72 per month are available for up to 20 years or until your child or children leave full-time education. The payments reflect the amount the deceased made in national insurance contributions (NICs) while they were alive.

Under the new bereavement support payment system, there will be a higher tax-free lump sum of £3,500 (it is currently £2,000), but the widowed parent’s allowance will be replaced by a system that pays £350 a month for only 18 months. Nor will the payments rise with inflation, as they do now. As a result of the changes, 75% of grieving families will be worse off, says the Childhood Bereavement Network charity, with widowed working parents losing £12,000 on average.

• Philip Hammond may have had to “ditch his grand plan” to increase Class 4 NICs for the self-employed, but the government is still pressing ahead with the abolition of Class 2 NICs for the self-employed from April 2018, says Rupert Jones in The Guardian, clobbering several hundred thousand people who earn less than £6,000 per year. At the moment, low-earners can voluntarily pay Class 2 NICs to gain entitlement to a state pension. To retain that right, however, they will have to sign up to Class 3 NICs. Jane Clark, a self-employed maths tutor earning about £2,500 would, for instance, have to pay £733.20 a year in Class 3 NICs, instead of £145.60 as she does now – an increase of 404%.

• Car tax changes coming into effect on 1 April are going to catch most motorists unawares, says ThisIsMoney.co.uk. Research by the insurance comparison site Confused.com reveals that 61% of motorists are unaware of the changes, which will affect almost all new cars bought from April, including green cars that cost more than £40,000, and could land owners of the most polluting models
with bills of up to £2,000. For more details, visit Gov.uk/government/news/new-vehicle-tax-rates-from-1-april-2017.

Merryn

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