The most common insurance pitfalls to avoid
Friday, 26 November 2010 12:00
by Ben Salisbury
Insurance prices across the board have risen dramatically over the last year so the temptation to just go for the cheapest option is strong. However, this should not be at the expense of having the right type and level of cover.
It is also vital that you think carefully about your lifestyle in relation to the type of insurance you have, and to make sure that likely mishaps that you, individually, are particularly at risk from are covered by the various insurance products you hold.
With this in mind, let's take a look at common insurance mistakes to avoid so you don't get any nasty surprises if you need to make a claim.
The first four common mistakes cover all insurance types.
1: Not reading the small print
Insurance documents are long and repetitive but hidden somewhere could be an exemption or clause that may invalidate a claim, should you need to make one. When you discuss your insurance policy with an advisor, ask them if there are any aspects of the cover that need special attention or are common causes that invalidate a claim. Check the key facts summary of the policy and the list of common exclusions and if you are unclear discuss this with the insurance company.
2: Giving out inaccurate information
It is tempting to withhold certain information to reduce the cost of different types of insurance. However, if you are tempted to do this, you need to remind yourself why you are taking the insurance out. The answer is likely to be to provide a payout if an accident, burglary or other incident occurs. If an insurance company discovers, for instance, that you have been broken into and burgled and not had the alarm and deadlocks fitted that you claimed to have had installed when filling in your insurance policy, you may not be covered and may not receive a payout.
3: Not getting the right level of cover
The British Insurance Brokers' Association (BIBA) has warned homeowners, motorists and business owners to seek professional insurance advice after its research revealed that an increasing number of brokers have seen both commercial and personal lines customers cut their levels of insurance protection during the economic downturn. The research found that reducing levels of sums insured, increasing excesses and deleting cover that is deemed non-essential were the most frequent examples seen by insurance brokers.
Whether it is right to do this is down to individual judgement. It can seem pointless to keep paying out for a certain type of insurance that you never claim for, but be wary of cutting cover in areas that you as an individual may be at risk from.
4: Not comparing providers
Taking out new insurance policies with existing providers or with your bank may be simple and easy but you could be missing out on huge savings by not comparing all suppliers of the product. Just because you have your home insurance with, for instance, Prudential, does not mean that they will give you the best deal on your car insurance. You should almost certainly avoid taking out any insurance product with a high street bank.
Use the myfinances.co.uk comparison site to find the best insurance cover for you.
5: Travel insurance
Extreme sports cover has to be very specific and you should aim for a tailored policy if you are interested in dangerous sports. Watch out because there are lots of exclusions. Even skiing holidays are not straightforward. Most importantly, take out an insurance policy.
Recent data released by AXA showed that 17 per cent of the UK adult population will go on a skiing or snowboarding holiday, but ten per cent of these people will take out no insurance at all. 25 per cent of those that do will rely on an annual travel insurance policy, but half of this number omit to check whether their annual policy covers winter sports. The data from AXA shows that 25 per cent of skiers are injured, and remember that in most cases the travel insurance will cover you for injuries to other people that you may cause.
6: Bicycle insurance
A common mistake is not having cover for expensive bicycles. These are not normally covered by your home contents insurance policy and most policies do not cover the theft of bikes from gardens or out buildings. If you have a bike that costs a lot it is worth taking out a separate policy.
7: Life insurance
Life insurance is one area that is often neglected by the people who most need it. If you have a family or other dependents, life insurance can provide them with the means to look after themselves if the worst were to happen and policies can start at as low a price as 20 pence a day. The younger you are, the cheaper the rate.
However, even individuals who do take out a life insurance policy often neglect a hugely important point:- taking out a policy that covers their mortgage. If you were to die and received a lump sum of £150,000 but have a mortgage of £200,000, then the payment would not even pay off the mortgage, let alone provide an income for your dependents in the future. You will have to pay a higher premium but getting a policy that pays of the mortgage combined with an income for your dependents into the future will help to ensure that your family's financial future is secure.
8: Home insurance
A common pitfall concerning home insurance policies is invalidating your policy when you leave your home for an extended period. Most people realise that if they are away from home for a number of months then their home insurance policy will be invalid. However, being away for just one month, or, with some policies, an even shorter period, can invalidate your home insurance.
9: Mobile phone insurance
Mobile phone insurance has a pretty awful reputation. It is notoriously overpriced and the restrictions on cover are often severe. If your phone is stolen when you leave it on a desk or table in a pub, even for a few minutes, many policies won't pay out.
In general, you should think carefully as to whether it is worth forking out for mobile phone insurance. The policy cost, unlike many other types of insurance, is not based on the normal demographics and claims history that dictate the price you would pay for other insurance products, so if you are not the type of person who loses things or your phone is not worth much, it's probably not worth bothering with.
10: Car insurance
New cars depreciate very quickly and a common mistake made with car insurance is not insuring your vehicle sufficiently to cover the cost of a replacement if you have an accident in the first year or two of ownership.
You can purchase additional 'gap' insurance so that if you write-off your new or relatively new car you receive enough back on the insurance to buy a car of similar value.
Use the myfinances.co.uk comparison site to find the best insurance cover for you.
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