Three Slippery Home Insurance Adverts
Read about why online discounts, no claims discounts and money off for combined policies don't save you money.
I think the next new insurance advert might go something like this: 'Get a 100% online discount!'
Of course, it wouldn't mean that you get 100% off. It just means that the discount is 100% online.
OK, insurers haven't gone that far just yet! But they do write other equally meaningless captions. Here I'm going to write about just three of them from home insurance, and why you should not heed them.
1. The online discount
- Churchill says: 35% online discount for new customers.
- aa.com says: Up to 20% online discount.
- Lloyds TSB says: Up to 15% discount on all insurance taken out online.
Right. Great. So...35% off what exactly? 20% off what? Without knowing what the basic premium is pre-discount, these figures are almost meaningless. It tells you that you will probably get cheaper insurance with those insurers online rather than offline, but it doesn't tell you how they compare with anyone else.
Based on these discounts, you might think that Churchill is the best and the AA is relatively stingy. However, Churchill might charge you £200 less 35% which is £130 and the AA might charge you £160 less 20%, which is £128.
Speaking as a former insurance industry insider, I can tell you that it's not unusual for basic quotes to be hugely different between insurers. The insurer with the biggest discount will by no means always be the cheapest. This makes the discount figure pretty useless when comparing quotes.
2. The no claims discount
Direct Line says: Make no claims and we'll give you a 10% discount when you renew.
This is another ad for new customers only, but this 10% discount applies when the policy comes up for renewal, presumably one year later. Thing is, Direct Line could, for example, set next year's basic premium 45% higher and then offer a 10% discount. Thus fulfilling its promise whilst charging a lot more.
This would be in line with my own experiences in the insurance industry. It also reminds me of a recent email from a Fool reader. He said that his insurer admitted to him that it increases premiums at renewal by 35% as standard practice!
Here's a tip: if your insurance premium stays the same or goes down at renewal, this does not mean it's a good deal. It often just means that home insurance as a whole has got cheaper, or that you paid a high price in the first place! There is usually a better deal out there.
3. Money off for buildings and contents combined
RAC says: Up to £50 off combined contents and buildings insurance.
£50 off what? £300? £3,000? With no basis to work from, this means nothing. Contrary to popular belief, it certainly isn't always cheaper to buy contents and buildings together. You should get both separate and joint quotes from a multitude of insurers.
Here's how separate policies can be cheaper:
Buildings and Contents
£315 (10% discount)
£324 (10% discount)
£324 (10% discount)
First look at the Buildings and Contents column. Each of the insurers offers a 10% discount for combined policies, making Insurer A's combined policy the cheapest at £315.
However, look now at the numbers in bold. If you buy Insurer B's contents policy, and Insurer C's buildings policy, it comes to £295, which saves you £20.
The insurers I mentioned above are no worse than any others. They all use this sort of advertising. I just urge you to be wary of it.