Don't make these five dangerous cutbacks!

by Serena Cowdy on 26 July 2011  |  3 comments
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We show you five insurance cutbacks you shouldn’t make.

As household budgets are stretched to breaking point, many of us are making cutbacks here, there and everywhere.

However, beware these five economies - they could prove to be false on a disastrous scale!

1. The EHIC myth

I know a couple who tried to save a few pounds by not taking out travel insurance the last time they went on holiday. They convinced themselves they didn’t need it - because they had a European Health Insurance card (EHIC) instead.

In fact, take this approach and you’ll be risking financial disaster. Here’s why:

The EHIC scheme only operates in European Economic Area countries, and Switzerland. It doesn’t provide any cover in other parts of Europe, or the rest of the world.

Even in these areas, the EHIC only allows you to access state-provided healthcare at a reduced cost, or sometimes free of charge.

While it’s definitely worth having, it doesn’t provide any of the other cover that makes travel insurance worthwhile. What happens, for example, if your holiday is cancelled, if your luggage is stolen or if you need to be rescued off the side of the mountain?

So, make sure you also take out travel cover that matches your circumstances. To find out how much insurance you really need, read Don’t get ripped off by your travel insurer!

2. Medical porkies

Another common travel insurance slip-up involves the non-disclosure of pre-existing medical conditions.

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When I’m looking for travel cover, I’m astonished at how some quotes shoot up when I disclose the fact. Some insurers seem to put me in a risk bracket with several terminal diseases!

It’s very tempting not to mention my asthma. After all, it would save me a few pounds, and I’m almost certainly never going to have to make a claim related to it, right?

However, don’t even think about not disclosing a health condition. This is deception and will risk invalidating your entire policy, whatever a claim is related to.

Instead, shop around until you find an insurer that treats your condition sensibly. Eventually, I found a real person to speak to, explained the mild nature of my condition, and was given a very reasonable quote.

3. Out and about

On the home insurance front, many people decide against an add-on called personal possessions cover, on the basis that it costs a few extra quid.

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That means your laptop will be covered on the way to work every day, and everything in your handbag will be covered if you’re mugged.

Personal possessions cover is a great alternative to pricy mobile phone insurance; and it will even cover your luggage when you’re on holiday.

Recent research suggests that most of us now carry several hundred pounds worth of belongings around with us on a daily basis.

And when I took out personal possessions cover, I found it added less than £20 to the cost of my yearly home insurance premium.

In other words, it makes financial sense. Just remember that, as with your main home cover, single item value limits will apply.

4. I don’t want to think about it…

Few of us like to think about our own mortality. Frankly, death is rather a depressing subject.

However, as we highlighted in You are going to die, that doesn’t mean it’s not going to happen. And if your reluctance to contemplate the inevitable is putting you off buying life insurance, you could be putting your loved ones at huge financial risk.

If no one is dependent on you financially, the chances are you don’t need life insurance. However, if you’re the main bread winner and/or have dependent children, you should at least consider taking out a policy.

You could choose cover which pays out a lump sum in the event of your death, or a policy which regularly covers the cost of mortgage repayments and other household expenses.

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5. Man’s best friend?

Recent pet insurance research from Sainsbury’s Finance makes sombre reading. In the last five years, 56% of vets interviewed said they have had to put down cats or dogs because their owners couldn’t afford the costs of treatment.

If you’re considering ditching your pet insurance to cut costs, think about what will happen if your furry friend does become ill or is involved in an accident. Could you afford to find several hundred pound to cover the vet bills?

Of course, taking out a pet insurance policy isn’t the only answer. Some pet owners prefer to ‘self-insure’, saving a little each month in a specific account, to be called on in just such an emergency.

This way, you’ll have the money to spend on something else if your pet remains fit and healthy.

However, self-insuring requires the discipline to ensure you don’t spend that money on something else! And if your pet requires treatment soon after you start saving, you risk not having sufficient funds to cover it.

More: Why a few white lies could cost you a fortune | Get your insurer to pay out