4 top insurance tips for the new year

As the credit crunch dips into a full on recession, choosing the right insurance cover becomes more important than ever. So today Insurance News Blog offers you 4 top insurance tips for the new year.

1. Avoid payment protection insurance
Number one in any list. Although banks and loan companies often try to force payment protection insurance (PPI) on customers taking out loans, they hide the true cost and fail to make it clear to their customers that taking out their cover is not mandatory. Lenders' PPI is usually vastly overpriced, and if you shop around you can always get a better deal.

2. Get your gadgets insured
Crime tends to go up in a recession, especially street crime so it's best to make sure all your desirable gadgets are covered.

Rather than insuring them separately get them added to your home contents policy. If you've acquired more gadgets over Christmas ensure that you are covered for the full amount.

3. Review your critical illness cover
Check whether the terms and conditions have changed, and whether it's still worth having.

In recent years these policies have become more and more expensive and with more exclusions. Insurers are also using unsavoury methods to avoid paying out. You might find permanent health insurance or an income protection policy actually represent better value.

4. Car breakdown cover
Especially in winter motor breakdown cover is a must. Make sure it includes at least these basic features: tow to garage, fix at roadside, take you and your passengers home, fix at home, and car hire or accommodation if your car cannot be fixed.

The following options are also desirable if offered: cover whilst driving on the continent, recovery for accident, theft or vandalism, and provision of a relief driver.

Tax cuts will help ailing insurers

The Association of British Insurers (ABI) insists that the proposed reduction in VAT from 17.5% to 15% will save the insurance industry at least £70m a year. As many insurers have been struggling in the hostile financial climate this could make all the difference to troubled companies.

The ABI stated that in 2007 the insurance industry was hit by £495m in irrecoverable VAT costs; if VAT was cut to 15% this figure would have been reduced to only £424m.

With so many institutions struggling to stay afloat during the current economic crisis caused by the credit crunch, this move may be enough to save jobs and keep premiums down.

Home insurance for beginners

The Times has a great beginner's guide to home insurance. There are two main types of home insurance; building and contents.

For those of you too lazy to read the article here are some brief highlights:

Building insurance

• Most lenders insist that you have this before offering a home loan.
• Protects the bricks and mortar of your property plus permanent fixtures like fitted kitchens and bathrooms.
• Also covers garages, greenhouses and sheds, but not usually boundary walls, fences and driveways.
• Protects a home from fire and damage by third parties.
• Not all policies cover storm and flood damage, burst pipes, water leakage and subsidence.
  Based on cost of rebuilding a property rather than its market value.
• Most policies will provide you with alternative accommodation should your home become uninhabitable.
  

Contents insurance

• Not compulsory, but advisable.
• Protects your possessions - anything from electronic goods, furniture and jewellery, to sports equipment and the food in your freezer. Increasingly, garden plants and tools are insurable too.
• Covers fire and third party damage, as well as theft, but may not pay out for damage caused by storms, flooding, frozen pipes and other leakages.
• Some policies cover legal costs should you or someone else sustain injury in your home or if you have a dispute with your neighbour.

7 key tips to keep in mind when buying travel insurance

If you're thinking about booking a trip abroad then, in these times of folding airlines and disappearing travel companies, you'll need the peace of mind insurance brings.

Keep these tips in mind before you part with your cash and you won't go wrong:

1. Before buying travel insurance through your airline or tour operator check that you can't get a better deal from a specialist offering a higher level of cover for less money.
2. If you go abroad more than once a year annual insurance may be a better option than a single trip policy.
3. Make sure your policy includes at least £1 million worth of medical cover in Europe (£2 million outside Europe), and personal liability of at least £1 million.
4. Check that there's a 24-hour emergency helpline.
5. Declare any existing medical conditions or risk invalidating your cover when you need it most.
6. Make sure your cancellation and curtailment cover are enough to reimburse you for the cost of your holiday.
7. Check the small print for exclusion clauses and excess amounts.

Struggling Direct Line and Churchill insurance owners look for rescue package

The insurance arm of Royal Bank of Scotland (RBS), the struggling parent company of top UK insurance brands Direct Line and Churchill, is subject to an advanced bid valued in excess of £3 billion. If successful private-equity group CVC and Swiss Re, the world’s largest reinsurance group would take a 51% stake in the business, according to The Times.

This could affect as much as half the population as, with 26 million policies, RBS Insurance is the second-largest general insurer in Britain, the largest motor insurer and the second-largest home, travel and pet insurer.

Like most other banks RBS has been hit hard by the credit crunch, and recently lost chief executive Fred Goodwin who resigned after the bank was forced to sign up to a rescue deal likely to make the British government its controlling shareholder in the short term.

Watchdog set to demand loan insurance crackdown

Last year the Office of Fair Trading alleged that banks were harming customer interests by loading cheap loans with expensive insurance policies and now Britain's beleaguered banks are set to receive another blow when the Competition Commission announces a crackdown on the huge profits lenders make on insurance products, according to the Financial Times.

The commission, which has been probing the sector for over a year and a half, plans to impose strict limits on the £5.5bn market for lending-linked sickness and unemployment insurance, which could slash the reported £1.4bn of excess profits the banks are claimed to earn through the sales, and possibly lead to a rise in the already soaring price of credit as lenders pass the costs on to consumers.

The commission wants to ban lenders from selling insurance at the same time as loans, giving customers a few days to shop around for better deals. It will also demand an end to the banks' practice of charging customers an up-front lump sum, on which interest is then levied, rather than staggering payments as with most other types of insurance.

The banks, already feeling the strain of the current economic climate, are expected to fight the plan.

Heath Ledger's life insurance refuses to pay out on suspicion of suicide

TMZ are running a very interesting story about Heath Ledger. Fascinating, you may say, but what exactly does that have to do with an insurance blog?

Well, six months before he died Ledger took out a $10 million life insurance policy; the money from this policy would go to his two year old daughter Matilda if anything happened to him. After his death the New York City Medical Examiner ruled that his demise was accidental. Despite this ReliaStar, the company he took his policy out with, suspected suicide, which would render the policy null and void, and proceeded to investigate.

ReliaStar's lawyers believe Ledger lied in his application about not taking any prescription or illegal drugs and have informed Matilda's lawyers they intend to take depositions from Mary-Kate Olsen, the masseuse at Ledger's home when he died, colleagues on his last film, his agents, doctors, psychologists and others. Claiming they could contest the policy if Ledger lied in his application, they also demanded details of all physicians and hospitals where Ledger was treated since 1996.

Lawyers for Ledger's daughter say it's an obvious ploy to drag the process out, for what could be years, to avoid paying out and in violation of California law. They have filed a lawsuit claiming ReliaStar has acted maliciously, fraudulently, and in bad faith by not promptly paying the $10 million.

AIG Insurance fights for life

The ailing insurance giant American International Group (AIG) has been granted permission by New York State to gain access to $20bn (£11.1bn) of assets in subsidiaries to stabilise the parent company which has posted losses totalling over $18.5bn (£10.3bn) in the last three financial quarters.

AIG, is the latest victim of the credit crunch which has already sent Lehman Brothers into bankruptcy and forced the sale of Merrill Lynch.

This intervention should now ensure that policyholders of the world's largest insurance company are protected.

How to cut your insurance premiums down to size

Motley Fool offers some great advice on how to reduce your insurance premiums.

Tips include:

1. Mobile phone insurance - Save money by avoiding the deals offered by your network provider, independent companies usually offer better value.
2. Car insurance - If your car isn't worth much is it really worth insuring it? Switch to third party, fire and theft cover to save on your premiums.
3. Home contents insurance - Companies tend to push higher levels of cover on people than they really need. Look carefully at your policy and adjust levels to the amount that suits you.

Car insurance price hikes add insult to injury for beleaguered motorists

The price of car insurance is higher than it has ever been according to research by Sainsbury's.

After a six percent annual rise, for the first time average car insurance premiums have topped £500; rising from an average of £486.13 one year ago to £514.36 today.

Elderly motorists were hit hardest, with their premiums increasing by an average of ten per cent.

Shariah compliant insurance for Muslims

Today sees the launch of Britain's first sharia-compliant insurance firm. Salaam Halal insurance offers Britain's 1.6 million Muslims FSA approved motor insurance policies in line with the Islamic legal code. The company uses Takaful principles which spread the risk between all policy holders, unlike conventional insurance policies which shift the risk from the policy holder to the insurance firm.

Policyholders' premiums are pooled then put into sharia-compliant investments which don't pay interest or involve alcohol or other prohibited products and services. The common fund is then used to pay any claims. If at the end of the year, the pool has a surplus the excess is passed back to policyholders through a discount on their next premium.

This is the latest product aimed at Britain's growing Islamic finance market, joining the Islamic Bank of Britain, Britain's first 100% Islamic bank and Lloyds TSB's range of Islamic finance products for businesses and individuals.

If the car insurance venture proves successful, Salaam, which offers services in English, Arabic, Bengali, Gujarati or Urdu, hopes to launch home insurance policies later this year.

How much life insurance do you really need?

Those kindly folk at thisismoney.co.uk have a handy Life Insurance Calculator for you. All you have to do is input amounts for each of the variables (such as mortgage outstanding and funeral expenses) and it will calculate how much life insurance you have to buy. It even factors in things like inheritance tax, so it really is quite comprehensive.

Have a go, you might be quite surprised.

1 in 10 driving without insurance

Apparently there are currently 1.2 million uninsured motorists on British roads, constituting 10% of the traffic on our roads, and adding an average of about thirty pounds on to insurance premiums. What's more, this figure is consistently rising. All the more reason to check the small print and ensure your car insurance is fully comp.

More on this and what to do if you are involved in an accident with an uninsured driver here.

FSA fines Land of Leather over insurance selling

Struggling sofa retailer Land of Leather was dealt another blow after being fined £210,000 by The Financial Services Authority for selling payment protection insurance (PPI) without properly training their staff or having adequate monitoring procedures in place according to The Times.

Of the 6 firms the FSA has penalised during its recent clampdown on PPI sales tactics Land of Leather is the first high street retailer. Although it is the last thing the struggling furniture group needed they may consider themselves lucky to escape the £1,000,000 fine levied on HFC Bank.

PPI policies are touted by vendors as a safety net for customers, protecting repayments on loans and credit for a fixed term, but consumer groups say customers are misled about the cover and that the policies simply generate profits for the companies selling and underwriting them. Sales staff receive commission for PPI sales and often push customers into buying unnecessary cover.

The FSA concluded that as a result of Land of Leather's actions 58,000 customers were exposed to “an unacceptable increased risk of buying unsuitable PPI”. They estimated that between May 2006 and June 2007 the retailer generated in excess of £3 million from sales of the policies and set the level of the fine accordingly.

Land of Leather has suspended all PPI sales while it tries to bring its procedures into line with the regulator’s guidelines.

Update on mortgage rate insurance

More reaction to Monday's story about Marketguard's mortgage rate protection in The Telegraph. Their money writer, Paul Farrow takes the, not unreasonable, stance that given the conditions that have to be met for the policy to pay out and the cost of the cover itself, most people who can afford the insurance can probably afford the increased mortgage payments, and those who can't probably can't afford the premiums either.

So far, it is looking like the general consensus on this one is that it is a opportunistic gimmick designed to cash in on people's fears about the current financial climate.

Is mortgage interest rate insurance really worth it?

The Guardian reports on a new type of insurance available to home owners worried about spiralling interest rates. Marketguard is offering mortgage holders insurance that protects against Bank of England base rate rises. Policies can protect against rises more than a nominated one to two point five percent above the current base rate and the rate of the lender. If both figures exceed this nominated rate the insurance will start paying out.

Costs vary depending on the amount borrowed and rate insured against, but average around the equivalent of a half percent interest rate rise in themselves

But the cover only lasts two years after which terms are renegotiated, the entire premium has to be paid up front in a single lump sum and mortgage brokers insist that in most cases it would be cheaper to opt for a fixed rate mortgage or remortgage at a later date. However, in the current climate the possibility of remortgaging is not available to everyone, and the Bank of England base rate has risen nineteen times in the last ten years, so Marketguard might just be an alternative worth investigating.

Insurance fraud on the rise

Insurance fraud is on the rise. The Telegraph reports a 70% increase in false claims in the last three years, costing British insurers £260 million in the last year alone as people struggle to cope with the current credit crisis.

The police report incidents of car crashes being staged to help people struggling with debt put in fraudulent claims to raise funds to ease their financial plight.

Of course predictably enough it doesn't actually cost the insurance companies £260 million, instead it adds an average of £40 to the premium of the average motorist. Bet you didn't see that coming.