Are you overinsured?
Filed under: Credit Cards
But in our rush to protect against the worst, many of us could be be overinsured and paying for cover we simply don't need.
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Obviously it is better to be over rather than underinsured and find your policy pointless when losses outweigh the amount of cover you have. However, paying for a more comprehensive policy than you need or doubling up on the same cover from more than one insurance product is a needless waste of money.
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"Whilst actively purchasing multiple insurances to cover one thing may not be common practice, there could be many people who accidentally have overlapping policies," explains Hannah-Mercedes Jones, home Insurance expert at MoneySupermarket.com.
Yet double the cover does not mean double the pay out. "You can have as many insurance policies as you like however the principles of insurance mean that you are not permitted to make a profit from a claim," adds Jones.
"For example, in a case where you lose your mobile phone you would not be able to claim more than the value of the item by making a claim on both your home and your gadget insurance. Some policies will have an exception clause stating that if you have other insurance on the item they will not consider a claim."
So what insurance products might you be doubled up on?
Research shows people rarely travel with the correct level of insurance for their possessions. In a recent study of holidaymakers with travel insurance by Moneysupermarket.com, only one in five (19%) had the right level for their belongings; a third (3%) were underinsured and half (51%) were over insured.
Travel insurance is often included as a perk in packaged current accounts so check whether you already have a policy and if the level of cover meets your needs. When buying a standalone policy, avoid overestimating the value of your luggage and only select the add-ons that you really need.
ID theft and credit card insurance
Having your credit card stolen can be a nightmare, particularly if the thief fraudulently runs up debts in your name. Equally, falling victim to identity fraud can cause all sorts of problems, from financial loss to a damaged credit record. So while ID theft and credit card insurance may seem like a good idea and policies are relatively inexpensive around £70 and £35 a year respectively, the policies offer customers little more protection than you already get free from providers under the Banking Code and Consumer Credit Act.
For example, Experian offers identity protection insurance for £6.99 a month, but all you get is a credit report monitoring and assistance if your identity is stolen - all of which you can get free. The Consumer Credit Act provides protection for purchases over £100 and the Banking Code requires providers reimburse you for any fraudulent transactions providing you haven't been negligent with your card or PIN.
Mobile phone cover
If the thought of losing your smart phone fills you with dread, mobile phone insurance is likely to provide much-needed peace of mind. Standalone policies and those offered through fee-based current accounts will pay out if your handset is lost, stolen or damaged, yet you may be doubled up on cover if it is also included in your home contents insurance.
While a standalone mobile phone policy is likely to provide wider ranging cover, at a cost of up to £180 a year, it is crucial to consider whether you really need it. If you do, shop around for price and look out for policies that also include cover for unauthorised calls or loss of credit.
These policies provide cover for the breakage of household items such as washing machines and TVs for a small monthly fee from around £5 a month. Although it is tempting to protect big-ticket purchases, you can easily end up paying out more in monthly premiums over time than the item would cost to replace. For example, a five-year extended warranty on a washing machine with a small chance of needing repair in the first five years could cost £170, when the initial price of the appliance was only £260.
If you decide to protect new electrical items, don't feel pressured into buying a policy at the point of sale. Wait until you get home to compare policies online to work out the true cost versus replacing the product yourself.