Payment protection insurance
Marketed as something that would cover you if you should fall ill or lose your job, payment protection insurance (PPI) is commonly sold alongside loans, credit and store cards, and mortgages.
But while the concept is good, the product itself has plenty of flaws.
Firstly, a lot of PPI is sold as a ‘single premium policy’ – this is where a lump sum is added to the amount you have borrowed. The result is that you have to pay interest on your insurance premium as well as your loan.
PPI is also fairly expensive. For example, based on a five-year £7,500 loan, monthly repayment with PPI costs £201.61 – £52.37 more than the monthly repayments of £149.24 without the cover. At the end of the term, you would have paid £3,142 for your PPI, adding 30% to your final bill.
Not only does a PPI policy come with a hefty price tag, but it’s also full of exclusions compared with other protection insurance products. “The small print is very small, so to speak, and it’s difficult to claim,” warns Bob Perkins, technical manager at IFA firm Origen Financial Services.
For example, the conditions most people claim for, such as back pain and stress, are generally not covered, and if you are on a short-term contract, work part-time or are self-employed, then you may not be eligible to claim on your policy at all.
PPI policies aren’t long-term either: most don’t pay out for more than 12 months (although some pay up to 24 months), so if you’re not able to return to work within a year, your payouts will stop.
Instead of paying for this cover, check with your employer to see what kind of sick pay it would offer you should you become ill or suffer an injury. If you don’t feel it’s sufficient, you could consider taking out an income protection insurance policy, which is a more comprehensive insurance product that would not only pay out until you return to work or retire, but would also cover common conditions such as back pain and mental health problems.
Any new goods you buy will have a manufacturer’s guarantee that will last for at least one year – this renders extended warranties pointless for the first year after purchase. Depending on the product, extended warranties will typically cover you from two to five years.
However, Cathy Neal, senior researcher at Which?, explains that in most cases the time period offered by extended warranties is still short enough for manufacturers and retailers to feel fairly confident that they won’t need to make a payout. “They pretty much know that nothing is going to go wrong in that time,” says Perkins.
He cites his own example of buying a TV last month: “The shop offered me a five-year extended warranty. I asked it: ‘Are you telling me that after five years it’s going to break?’ If it does, then I’ll have to pay for either a repair or a new TV anyway, so what’s the point of buying a warranty as well?”
In addition to the manufacturer’s guarantee, under the 1979 Sale of Goods Act, retailers are liable to pay for any repairs or replacements to items they have sold that develop faults or don’t function properly within a short time of their purchase. For products expected to last longer, traders could be liable to compensate you for up to six years.
A lot of extended warranties only cover mechanical breakdown and not general wear and tear. So read the small print, and watch out for exclusion clauses. The only way to address unfair exclusion fees is through the courts – and retailers and manufacturers alike rely on the reluctance of consumers to go through this process.
Also watch out for cashback warranties, which promise to refund all of your premiums if you don’t claim on the policy for a fixed period. These may sound great, but they require customers to register within a short time of buying the warranty. If you miss the deadline, you could lose your right to the cashback at the end of the term.
Mobile phone insurance
You’ve just bought a brand-new mobile phone, and while it seems inconceivable that you would drop your precious toy, let alone leave it behind somewhere, you could be forgiven for thinking that getting mobile phone insurance is a priority.
Mobile phone insurance costs anything from £5 to £15 a month but tends to pay out only if your phone is stolen. Also, depending on the level of cover, the excess ranges from £10 to £50. For expensive smart phones, such as iphones, this is only a fraction of the total cost of the handset, but considering that you can buy most standard phones for the total excess, it represents much worse value for money for the average mobile phone owner.
Phone salesmen will invariably tell you that insurance is essential, but just as cover for your dishwasher and TV might be included under your home contents insurance, your mobile phone is likely to be protected under this policy too. Look for an ‘all-risk’ home contents policy.
Although it will cost slightly more, this will cover items such as mobile phones and mp3 players, even when they’re not in your home, and will insure against accidental damage and loss as well as theft.
ID theft cover
Banks are especially astute when it comes to marketing these products. If you’ve been in the unenviable position of having to call up to cancel stolen bank cards or report fraudulent activity, after the tea-and-sympathy act, the operator will often take the opportunity to tell you about the particular provider’s ID theft-cover package.
If you’ve been a recent victim of theft, and are therefore feeling a little more vulnerable than usual, signing up to this kind of cover might seem like a sensible move. But is it really worthwhile?
Premiums cost approximately £7 a month; however, any loss as a result of theft is covered under the Banking Code, which costs you nothing.
So what do you get for the extra £7? With ID cover, you can see your credit record, and you’ll be alerted if someone has checked your credit report or committed any fraudulent activity. It also offers you expert advice from trained professionals.
“But banks can’t really do much more than you can do yourself,” says Neal. For example, the government’s fraud prevention service, CIFAS, provides free advice, and you can check your credit report for a one-off £2 fee with one of the three main credit agencies, Experian, Equifax or Callcredit.
If you want regular access to your report it will cost you around £10, but bear in mind that even with this service no agency can repair your credit status.