Six insurance policies that suck!
Buying these pathetic protection plans - particularly from your bank - is a huge mistake.
Over the past two or three decades, the UK insurance industry has given itself a really bad name. Repeated scandals have cost consumers tens of billions of pounds, causing millions of us to turn against some of the UK's biggest financial firms.
An unfair gamble
At its best, insurance offers a simple way to protect you and your loved ones from the twists and turns of fickle fate. However, problems arise when insurers bump up premiums to boost profits. What’s more, some insurers will reject claims for the flimsiest of reasons.
Six protection rackets
Having worked in the insurance industry from the Eighties to the Noughties, I know of many policies that simply aren't worth the paper they're printed on. For example, here are six insurance policies (or 'protection rackets') that, in my opinion, offer extremely poor value for money:
1. Extended warranties
When buying any gadget, electrical appliance or vehicle, you're sure to be offered an extended warranty to provide added protection after the manufacturer's guarantee ends. Some of these warranties are insurance policies, whereas others are service contracts designed to avoid strict rules governing insurance set down by the Financial Services Authority.
I always say no to extended warranties, simply because they are so expensive. For example, take a two-year extended warranty costing £200 offered alongside a camera priced at £600. In other words, this premium equates to a third (33%) of the purchase price, which is a ridiculous rip-off.
In many cases, electrical retailers make more money from pushing warranties than they do from selling appliances. Despite a clampdown on this market by the Competition Commission in 2005 (and a newly announced code of conduct from retailers), extended warranties remain a £1 billion-a-year con.
If you must have this protection, then buy it from a stand-alone provider, such as warrantydirect.co.uk, warrantyex.co.uk and domgen.com.
2. Home insurance from mortgage lenders
If you're a homeowner with a mortgage, then your lender will insist that you have buildings insurance. What's more, it will try to sell you this and contents insurance, too. However, buying this protection from your mortgage lender is a really big mistake, because their policies are always over-priced.
For example, a couple of years ago, I wrote an article urging people to prune their premiums by switching providers. One reader was paying £400 a year to his mortgage lender for home insurance, having never switched in 20 years. He was furious to discover that a replacement Best Buy policy cost just £100. In short, always shop around online for home insurance!
3. Travel insurance from travel agents
Buying travel insurance from travel agents and tour operators is another big mistake, as they frequently charge between five and 10 times as much as Best Buy policies cost. Again, always go online for travel insurance.
4. Payment protection insurance (PPI)
Although I've campaigned against rip-off payment protection insurance for nearly a decade, my work is not yet done. Although regulators and consumer watchdogs have clamped down on PPI sold alongside personal loans, this multi-billion-pound rip-off lives on.
In particular, the PPI policies offered alongside credit and store cards (worth £1 billion a year) and mortgages (another £1 billion) still need a clean-up. Most of these millions of policies offer very poor value for money and, therefore, are ripe for ditching and switching.
If you have a decent emergency fund or rainy-day savings, then you might get by without PPI. Then again, if you must have this cover, then buy it from reputable stand-alone PPI providers such as britishinsurance.com and paymentcare.co.uk.
5. Boiler and central heating cover
In yet another example of exploiting captive audiences, energy suppliers such as British Gas and nPower put a lot of effort into selling home-emergency policies to their customers.
Frankly, these policies are expensive, riddled with get-out clauses and loopholes, and frequently mis-sold. They typically cost between £150 and £300 a year, which adds up to several grand per decade. That's enough to buy a brand-new boiler every five to 10 years.
If you must have this peace of mind, then shop around for Best Buy cover from the likes of uswitch.com and energyhelpline.com, as well as Aviva, Direct Line and Domestic & General.
6. Card protection plans
Providers of card protection plans, from market leaders such as CPP and Sentinel, offer to cover your losses arising from fraud, theft and card loss. In return, they charge premiums of £20 to £30 a year to protect all of your credit and store cards.
However, this is yet another over-priced rip-off you can live without, as your liability due to fraud on a credit card is limited by law to just £50. What's more, many card issuers will absorb this initial loss for innocent cardholders. Likewise, the identity-theft insurance sold by these companies is equally costly and worthless!
Finally, I firmly believe that all adults need insurance, to some degree or another. However, to make this a fair gamble once more, we must find the right policies at the right price, while dodging the dross!