Beat the protection racket

From house insurance to life assurance, you can save yourself a lot by cutting the fat out of your policies, writes CHARLIE TAYLOR

FROM BEING a nation prepared to pay over-the-top prices for just about everything, the Irish have become canny consumers, much more likely to shop around for the best deal. This is particularly the case with insurance.

Instead of just accepting whatever premium is offered, people are now seeking better plans and ditching useless warranties that can cost a packet.

“From this recession has emerged a new wave of tougher, price-conscious, value-savvy consumers who have mastered keen negotiation skills and are prepared to go through the contract with a fine-tooth comb to achieve cost savings,” said Louise Ledwidge, household insurance manager with Getcover.ie. “We have noticed a threefold increase in calls in the last 18 months from consumers looking to renegotiate a better deal or restructure their policy to produce a lower premium.

“Thankfully, although people are much more price-conscious these days, they are being clever when it comes to insurance. In the past, they would only consider switching providers if the saving was greater than €25-€50 – that threshold appears to have fallen to €10-€20. In addition, consumers are sufficiently knowledgeable not to take on large claims excesses for a relatively small reduction in their premiums.”

One of the best ways to save money on insurance is to avoid taking out unnecessary policies. Extended warranties on appliances, credit card and loan protection policies and mobile phone insurance are often not worth the paper they are printed on, as restrictive terms and conditions mean they rarely pay out.

“Many people are still over-insuring, particularly with home insurance, because they often just go for what their broker tells them to, instead of fully investigating their options,” said Dermott Jewell, chief executive of the Consumers Association of Ireland.

“They are also spending large sums on ridiculous policies such as mobile phone insurance – which are not only very expensive but also often unnecessary, because in many instances they will be covered under home insurance or other policies.

“Paying out for warranties is often a waste of time as well, because consumers most likely have a legal right to the repair or replacement of expensive items such as televisions or washing machines, even beyond the basic warranty offered.”

Income protection is another area where consumers may be paying over the odds. According to Linda Gallagher, joint managing director of First Ireland Insurance, this is due to the fact that many people have been forced to take a pay cut in the past few years.

“To make matters worse, many of these policies incorporate automatic index-linking, which may increase the benefit by 3 per cent per annum,” she said.

“When salaries were increasing every year, this facility was very important to ensure benefits remained in line with inflation. Now, however, it is exacerbating the risk of over-insuring. What this means for the consumer is that a portion of the benefits they are paying for, they will not be entitled to [claim].”

Gallagher advises consumers to check their policy cover and talk to a financial adviser to see whether it fits with their current circumstances.

“While these contracts, in the past, did not have the flexibility to allow policyholders to reduce the benefit and premium, [these days] insurance companies are willing to arrange for such amendments,” she said.

With building costs dropping, homeowners are another group who need to consider updating their insurance policies. Home insurance is perhaps the most common type of plan for which consumers are paying sums which don’t reflect reality.

A survey from the Financial Regulator, published last year, found that homeowners could save up to €400 on home insurance by shopping around. It reminded consumers to insure their home for the amount it would cost to rebuild it – the reinstatement value – rather than its current market value.

If a house was insured for too much, the regulator said, the premium would be higher than necessary – with no added benefit. In the event of a claim, insurers would still pay no more than the cost of rebuilding the house.

Such advice is echoed by those in the industry, who point out that insurance companies won’t recalculate the value of insurance unless instructed by the homeowner.

“Many people who effected mortgages directly with the banks were sold home insurance [through them]. They will find themselves over-insured as the bank, in many instances, insured [it for] the purchase price as opposed to the rebuilding costs. As building costs have reduced significantly, some households may be paying for cover they do not need,” says Ciarán Phelan, chief executive of the Irish Brokers Association.

“On the flip side, however, many people are under-insured when it comes to contents.

What constitutes contents? If you were to turn your house upside down, whatever would fall out would be considered contents.”

When renewing policies, check rebuild costs (for the amount of building cover needed) on the Society of Chartered Surveyors website (scs.ie). You can also negotiate further discounts if you have a smoke and house alarm.

Life assurance is yet another area in which customers are paying way over the odds, according to John Geraghty, managing director of LA Brokers. This is particularly the case with mortgage protection cover.

“A lot of people I come across have been sold a policy which, instead of just covering the life of a mortgage, continues on, becoming astronomically expensive over time,” he said.

Consumers must bear in mind that mortgage protection policies won’t necessarily be cancelled by lenders. They should therefore make sure they inform the company when there are changes. The same applies when a house is sold or, in the worst possible case, repossessed.

Geraghty said consumers often struggle when reviewing policies because of the practice of bundling different policies together into one direct debit. Because of this, policyholders often don’t know how much they are paying for a particular product.

“Consumers need to closely review their policy and shop around more, because there is money to be saved at present.

In recent months, Zurich Life, Friends First and New Ireland have all reduced their premiums and competition in the marketplace means insurers may cut prices further,” he said.

Car insurance is another “must-have” insurance policy, and one which many brokers say is worth shopping around for. However, the value of the vehicle does need to be factored in – and car values decrease significantly over time.

Most insurers now base their rate on the year of manufacture, effectively incorporating their own estimate of the value in any plan, so while you might think your car is worth a certain sum, your insurer might not.

Insurance brokers highlight a number of areas where savings can be made, including taking out multi-trip travel insurance rather than cover for individual trips. In addition, policyholders who have stopped smoking for at least a year can see a significant fall in the cost of life assurance policies simply by informing their insurer of the lifestyle change.

The bottom line is that an in-depth review of all your policies could end up saving you a small fortune.