A recent survey by the Association of British Insurers (ABI) found that almost a quarter of people have cancelled their contents insurance and others have cancelled their life insurance to save money. While it is always a good idea to keep track of your finances and cut back on any unnecessary spending, it is important to make sure you don’t get rid of something you may need in the future.
Although most insurance is optional (except for third-party motor insurance if you drive on a public road), it is important to stop and think about whether spending a small amount on the premium is better than the risk of paying out thousands of pounds of your own money if anything were to happen to you.
Here are some of the main types of insurance available and what may happen if you’re not covered. For more information on these and other types, see Related information.
What insurance must you have?
- Third-party motor insurance is a legal requirement if you drive. The police have the power to seize and destroy uninsured vehicles. If you are involved in an accident (whether or not it was your fault), you will have to find the money to cover any damages, and you will probably get points on your drivers’ licence, a substantial fine, and possibly a criminal record.
- Employers’ liability insurance is a legal requirement if you are an employer. This is needed in case you have to pay out compensation to your staff if they are injured at work or become ill as a result of work while in your employment. You will also need third-party motor insurance if you use motor vehicles for your business.
- Buildings insurance is usually compulsory if you have a mortgage, as your lender will want to ensure that their asset (your property) can be rebuilt if it is damaged by fire, floods or subsidence. Rebuilding a home could cost over £100,000, so even if you own your house outright, think about whether you would be able to afford this if it happened to you. Use the Building Cost Information Service’s calculator to see how much cover you may need – see Related links.
What insurance might you need to keep?
- Contents insurance – the average home now contains over £40,000 of clothes, gadgets, electronics and furniture. Although you may feel that you’re unlikely to get burgled, or have your home damaged by fire or flood, would you be able to afford to replace all your essential contents if you were?
- Income protection insurance also known as permanent health insurance (PHI) – if you are an employee and you fall ill, in most cases your employer must pay statutory sick pay for up to 28 weeks, though this will probably be a lot less than your full earnings. After that, you may have to rely on State benefits. Would this be sufficient for you to live on?
- Critical illness insurance – as you get older, the likelihood of getting a critical illness increases and most policies do not cover pre-existing medical conditions. So if you cancel your insurance, you may find it harder and more expensive to try and restart it at a later date.
- Life insurance – this is only necessary if you have someone who relies on you financially (which may also include loan and/or mortgage providers) – see Life insurance. The older you are when you start life insurance the more expensive it will be, so consider this if you’re planning to cancel or not renew a policy.
- Travel insurance – if you’re holidaying in the UK you will probably be covered by your contents or motor insurance if something went wrong, but check your policies to see what’s covered and what isn’t. If you’re going to Europe you may be entitled to free or reduced-cost, State-provided healthcare, with a European Health Insurance Card (EHIC), but the EHIC is not a substitute for travel insurance, as it only covers you for when you are ill. It will not cover any private medical healthcare or the cost of things such as mountain rescue in ski resorts, repatriation to the UK or lost or stolen property. In countries outside the EU, healthcare can be very expensive, so think about whether you would you be able to cover the cost of medical treatment as well as the associated travel costs of bringing you home to the UK, which could run into £1,000s.
- Flood damage – if you live in an area that is likely to flood and you let your policy lapse, you may find it harder to get cover when you try to restart it at a later date.
What other insurance might you have?
- Payment protection insurance (PPI) also known as accident, sickness and unemployment (ASU) insurance – you may have taken this out to cover a specific loan repayment in case you can’t work because of involuntary redundancy, accident or illness. If you have a single premium policy, find out what you’ll get back if you were to cancel it – you may get back less than you expect. And think about whether you could afford the repayments if something happened. Rather than cancelling it, see if you can get a better deal using our Comparison tables.
- Mortgage payment protection insurance (MPPI) – this is similar to PPI but specifically covers mortgage interest repayments. Think about whether you could afford the repayments if something happened. Rather than cancelling it, see if you can get a better deal using our Comparison tables.
- Private medical insurance (PMI) – although most medical treatment in the UK is available free on the NHS, you may have taken this if you want a faster and better level of service. It’s your choice to cancel but you may have to pay higher premiums if you want to restart it and you won’t be covered if you know you’re going to need treatment. There may be cheaper alternatives, for example Health cash plans.
These days you can get insurance to cover almost anything, including insurance to cover mobile phones, dental or vet’s bills, legal expenses and long-term care. It’s your choice whether to take out or renew these types of policies, as long as you’re comfortable taking the risk that you could manage financially if anything happened. For more information see Insurance.
What if I can’t afford insurance?
- Review your cover – most types of insurance have different levels of cover, so you may be able to get a lower level of cover for a smaller premium. Talk to your insurer to see what they can do for you. But don’t be persuaded simply by cost; make sure the insurance still meets your needs.
- Check your employer’s benefits package – it may include certain types of insurance (often PMI, travel insurance or life insurance) and you may also be able to include your partner and family on some of the policies, so make sure you check before buying your own.
- Don’t double up – check that you are not covered for the same thing on more than one policy, as you are only allowed to claim once for indemnity insurance policies.
- Paying for extended warranties? – check what they cover. Some warranties offer no more protection than your entitlements under normal consumer protection legislation, and in some cases you may already be covered by your contents insurance. Also, think about how likely the product is to break down.
- Increase your excess – ask your insurer whether increasing the excess you would have to pay if something happened would reduce your premiums.
- Shop around and compare like with like to find the best deal that you can for your circumstances. Always make sure you disclose all of the relevant information, otherwise the policy may not pay out when you need it.
- Cut back on other spending – if you can, try and cut back on something else rather than cutting back on insurance. It may be better to forgo something else than risk not being able to afford to replace your belongings if something happened. Use our Cut-back calculator to see where you can make savings.
- Don’t be tempted by unauthorised brokers who claim they are linked to a legitimate firm – they may not be who they say they are. They may be keeping your money rather than passing it on, meaning that you are not insured
What are my responsibilities?
- You must disclose the relevant facts when applying for any type of insurance. If you don’t, you could invalidate your policy and the insurance company may not pay out in the event of a claim.
- Make sure you read the key policy information to check what is and isn’t covered. Ask the provider or insurance company if there is anything you don’t understand.
- Be aware that if you underinsure your contents for £20,000 when they are worth £40,000, the insurer would only be obliged to pay out half of what you claim for.
- Check for excess charges. Some policies make you pay a certain ‘excess’ amount before they pay out on claims, and some policies charge an excess per clause rather than one overall.
- Check the exclusions again. The most common reason for insurers to reject a claim is because the policy didn’t cover what people thought it did.
- Don’t exaggerate any claim you do make. You will invalidate your claim, it may prevent you from getting insurance in the future, and it is a criminal offence.
