Homes, cars, travel, contents, accessories, appliances, mobiles….there are so many insurance options you could take out, but what insurance do you really need? Insurance is one of those things where you can sometimes feel like you’re just throwing money away without ever getting anything in return, and it can make you reluctant to want to buy any, but is it worth the risk not to have it?
Two years ago, my daughter (age 2) broke her leg when we were on holiday in France. Even with her EHIC card, the bill for her treatment, hospital stay and return to England in an ambulance, was A LOT of money, and we were so grateful that we had travel insurance that covered the cost. I’d never go anywhere now without taking out travel insurance, but I have been wondering if other types of insurance policies are equally necessary and whether it’d be money saving or not to do without.
I was chatting to Mr Manypennies about which kinds of insurance are really worthwhile – he had a lot to say, and agreed to write a post about it -here it is!
Should you take out insurance?
Insurance is a gamble, which for the average person, results in a net loss over the course of their lifetime. If this were not the case, insurance companies (like bookies) would not make any money.
This doesn’t mean all insurance is bad idea, simply that you should consider what the level of risk of not having it is. This will vary for people depending on how much they could absorb the costs of potential misfortunes, and what level of risk they are willing to take. I’ve broken them down into categories starting with the insurance you really do need to take out.
Insurance you must have by law
In the UK at least, drivers are required to have appropriate insurance for their vehicles. Financial consequences of an accident could run to millions of pounds, particularly if any parties are injured, so this makes it a no-brainer. Don’t pay over the odds for car insurance however – it’s almost always worth shopping around before your renewal is due. You can use a comparison site such as confused.com to compare quotes and make sure you get a good deal.
Insurance that you probably need
Home (buildings) insurance (if you own your own home)
If you have a mortgage on your home, you will be contractually obliged to insure it, but even if you don’t, the vast majority of people would not be able to absorb the cost of replacing their home should it be destroyed or seriously damaged. Unless you have savings greater than the rebuild value of your house that you could afford to lose, then home insurance is something you should probably have.
Aside from being covered for cancelled holidays, transport or accommodation problems etc, the cost of medical care abroad can be very expensive. Even if you are travelling in Europe and have an EHIC card, you may still be required to pay for a proportion of your care. (As an example, a couple of years ago our daughter broke her leg whilst holidaying in France, she was treated in a public hospital, and the insurers paid out quite a few thousand pounds for the medical care, as well as facilitating her repatriation by ambulance to the UK, as she was unable to travel in a car). Even though hopefully the odds are against you needing any medical treatment, you can never predict an accident or emergency, and for the relatively low cost of travel insurance, it’s probably just not worth the risk not having it.
Insurance most people will need
Home contents insurance.
If you have substantial savings, and don’t mind taking a fair amount of risk, then you might not need home contents insurance. However, whilst many claims on contents insurance policies will be for loss of valuables following theft, you should consider the possibility of having to replace all your assets, should the worst happen. The average value of the contents of a 3-bedroom house has been estimated to be £55k, so based on the size of your house, you can estimate how much you’d need in case of total loss. (We have contents insurance, as we certainly couldn’t afford to replace the contents of our home from savings!).
Whether this right for you depends on several factors, such a who uses the vehicle(s) in your household, the reliability of your vehicle(s), and whether you want the risk of having to find a local garage or shop around for the cheapest ‘instant’ breakdown cover (which could be at the side of the motorway in the cold and rain). Having said that, the instant call out costs can be cheaper than a year’s breakdown cover, so it might well be worth the risk.
I’ve had breakdown cover for the past thirteen years and never used it, however, knowing that should Missmanypennies breakdown with the kids in the car it would be simple for her to get recovered, makes it worth it for me. As always, shop around for the best deal.
You can often get good cashback deals on insurance through Quidco or Topcashback, so it’s always worth checking those before you buy. If you’re not already taking advantage of cashback sites for your shopping, you can find out more in this post about earning cashback when you buy online.
Insurance you may well not need
Appliance breakdown insurance
For most people this is likely to be a waste of money. As an example, an additional 3 years warranty on a £1k TV is £120, the same cover for a £600 fridge is £65. In most cases, such cover will entitle you to a repair, which, sourced from a local trades person, might have cost less than the cover. Whilst some people will be unlucky and suffer multiple breakdowns, the average consumer will be better off (remember the insurance companies want to make money).
Mobile phone insurance
Again, for most, this is likely to be a waste of money.
Unless you are particularly clumsy, or have a penchant for losing things, this is another one not to bother with. Given that most people upgrade their phones on a regular basis, even if a phone is lost, the additional cost of an early upgrade on that one occasion is likely to outweigh the cost of mobile insurance. As an example, an iPhone 7 can be insured for £7.49 a month. Just over 6 years of premium would cover the cost of a new one. Having owned a phone for over 18 years, and never taken insurance, if I were to lose my phone three times in the course of the next week and replace it with a new iPhone 7 on each occasion, then I would still be better off than if I had insured my phones, not to mention that with every claim there’s likely to be an excess payable which adds to the total insurance cost.
One other thing to mention is that some policies will cover the cost of unauthorised phone calls, which could in theory far exceed the value of even the most expensive phone. If you choose to go without insurance, it may be wise to takes steps to reduce the risk of calls being made on a stolen phone. Signing up for a capped tariff and protecting both your phone and sim card with a pin code (or fingerprint) are ways to help prevent this.