Don't burn money on your boiler cover

Cover for boilers and home emergencies is costly and riddled with get-out clauses!

On 31 October, shares in HomeServe -- a leading provider of home-emergency cover and domestic repairs -- plunged more than a quarter (28%) in a single day. Since then, its share price has continued to slide and today stands at less than half its 2011 peak of 530p.

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What caused HomeServe's Halloween horror?

The company (which claims to be "Britain's fifth emergency service") admitted that some of its three million UK home-emergency and maintenance contracts had been mis-sold. What's more, following a highly critical internal review of its business practices by auditors Deloitte, the company suspended all outbound sales and marketing activity relating to its home-emergency cover and similar plans.

Frankly, this came as no surprise to me, as HomeServe has been attracting negative coverage for years. In fact, typing "HomeServe complaints" into Google brings up dozens of websites and discussion boards containing countless gripes about HomeServe's poor customer service and high-pressure tele-marketing practices.

What's more, I've been arguing for years that such home-emergency and boiler plans are, by and large, a complete rip-off. In my view (as an ex-insider with a 15-year career in insurance), they are universally over-priced, widely mis-sold, and riddled with exclusions and get-out clauses.

Expensive peace of mind

HomeServe, npower, British Gas and a whole host of other companies sell insurance or service plans that protect homeowners against boiler breakdown, central-heating failure, blocked drains, burst pipes and electrical faults.

Some of these plans are insurance policies, backed by approved underwriters, while others are service or maintenance contracts, with no central pot for claims. However, both types of policy are designed to make bumper profits for their providers by taking hard-earned cash from customers' pockets.

The most comprehensive policies can cost upwards of £300 a year, or £25 a month by direct debit. This is a steep price to pay for what often turns out to be weak and unreliable so-called 'peace of mind'.

Is this cover worth having?

With wintry weather on the way, this is the peak time of year for sales of home-emergency and boiler-breakdown plans. However, the big question is: should you buy this protection at all?

Here are 10 tips to help you decide whether you should protect yourself against home emergencies, boiler breakdowns and other unforeseen events:

1. Only homeowners need it

If you are a private or council tenant, then you should not buy these policies, as all emergencies, repairs and maintenance should be dealt with by your landlord, council or housing association. Even so, in the past providers have mis-sold such policies to tenants, so make sure you've not been scammed.

2. Do you already have cover?

Before buying a home-emergency plan, check to see if you already have similar cover. I know of many cases where customers -- especially older folk -- have been sold multiple policies covering the same risks.

Indeed, when settling the financial affairs of a deceased elderly relative, I found direct debits for three identical policies.

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3. Will your home insurance cover it?

HomeServe sells insurance against bursts or leaks from the underground water supply pipe to your home. This supply-pipe cover costs £3.50 a month (£42 a year) but is largely unnecessary. Often, such emergencies are covered by accidental damage cover included in home insurance.

Also, some water companies mend leaks free of charge, so as to meet their targets for reducing water leakage.

4. Do you have an emergency fund?

Why hand over, say, £25 a month to HomeServe, British Gas, npower and similar providers of home-emergency policies when you can be your own insurer?

You can self-insure by paying a monthly sum (say, £25) into a high-interest, easy-access savings account. Within two years, you'd have £600 built up, plus extra interest on top. By self-insuring, you keep every penny if you don't need to make a claim, rather than handing over 'dead money' to these providers.

5. Get to know local tradesmen

When you make a claim under a home-emergency plan, your provider will send round an approved tradesman to undertake repairs. However, you have no idea how competent or reliable this person is, and must rely on the supplier's vetting procedures.

It's far better to get to know trustworthy local tradesmen who you know will do a good job at a fair price. Word-of-mouth recommendations are best, but websites such as Checkatrade and MyHammer can help, too.

6. Have a yearly service

They say that "prevention is better than cure" and this applies to home appliances, too. Rather than spending £200 to £300 a year on insurance of questionable value, pay for a yearly service for your boiler, gas appliances and central heating from a Gas Safe-registered tradesman.

This will help to keep them in tip-top condition and spot problems before they turn into major failures.

7. What is covered?

As with all insurance policies, home-emergency and boiler cover comes with limits, exclusions and get-out clauses. Please check your policy carefully to see if it actually covers what you were promised when you signed up.

In most cases, there will be limits on individual claims (say, £1,000 to £1,500) and on the number of call-outs you can make in any 12-month period.

8. Are you really covered?

Just like the massive mis-selling scandal involving PPI (payment protection insurance), some home-emergency plans have been sold to people who simply cannot make successful claims. For example, if your boiler is more than, say, 15 years old, then it is unlikely to be covered by any policy. Likewise, tenants with these policies should immediately demand a full refund plus interest.

Of course, companies don't want to cover a battered, old boiler any more than they want to insure a beaten-up wreck of a car. Thus, boilers over a certain age are excluded from plans. In any event, very old boilers are likely to be highly inefficient, so replacing them could mean big cuts to your energy bills.

9. Did you buy from your energy supplier?

Your energy supplier is absolutely the worst organisation to buy home-emergency and similar plans from. As a 'captive customer', you're there to be fleeced, so energy companies charge unbelievable mark-ups on the true, underlying cost of these policies. If you've bought your plan from your energy provider, then you're sure to be paying well over the odds.

10. Shop around for better value

The best way to buy these policies -- if you need any at all -- is to shop around for independent, stand-alone cover. By finding a Best Buy policy, you could halve your payments, potentially saving upwards of £100 a year.

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