Worthless insurance policies you should never take out: From handbags to boilers – our guide will help you avoid rip-off cover as premiums rocket

Your insurance bills are about to rocket. In three months’ time, the cost of new home, car and medical policies will rise in a £4 billion tax grab by the Chancellor.

Under plans announced in November by Philip Hammond, insurance premiums tax will rise from 10 per cent to 12 per cent in June.

Insurers are preparing to add around £50 to the average policy. In some cases, it’ll cost hundreds of pounds more to renew your deal.

And if that wasn’t enough, drivers last week found out the way accident payouts are calculated will change so that the seriously injured get more cash.

That will add another £300 a year to premiums for older drivers and a staggering £1,000 for the under-25s.

So which cover do you really need — and which can you do without?

Warning: Under plans announced in November by Philip Hammond, insurance premiums tax will rise from 10 per cent to 12 per cent in June

ADD VALUABLES TO HOME COVER

You do need home and contents insurance. Buildings insurance is compulsory if you have a mortgage because it’s one of lenders’ conditions for giving you a loan.

It protects against the unlikely, but devastating, impact of a fire or subsistence, where costs run to hundreds of thousands of pounds.

It’s tempting to think that’s enough — but contents insurance is vital, too. This cover pays out if you’re burgled or your belongings are ruined in a flood.

List valuables on your main policy, rather than getting separate cover. Check the limit for individual items and the excess. This is what you’ll have to pay towards any claim.

If you shop around you can get buildings and contents cover combined for around £160 per year.

But make sure you check what you are getting for your money. Data from the City watchdog shows payout rates vary between insurers.

Pricey: Nobody wants to be stuck without hot water or central heating in winter, but Boiler cover is often poor value for money

For example, Zenith Insurance rejected one in five people who claimed in the 12 months to August last year, while RSA Insurance paid out in 98 per cent of cases.

Zenith says complaints are low and many of the claims it rejects are outside its policy terms.

You don’t need boiler cover. Nobody wants to be stuck without hot water or central heating in winter, but it’s often poor value for money. The average annual cost of boiler cover is a hefty £247.

Yet Which? research shows it costs just £217 — or £30 less — for a typical annual boiler service and repair bill combined. It says that, as a result, just three in 100 customers benefit from one of these plans, which are typically sold as an add-on by insurance companies and energy suppliers.

British Gas is behind half of the boiler policies taken out. Its basic HomeCare plan costs £192 per year if you don’t want to pay an excess. An annual service is thrown in — but you’d still have to claim every 18 months to make it worthwhile.

British Gas says its provides ‘excellent value for money’ and ‘peace of mind’ around unexpected costs.

Your best bet is to save some money into an emergency fund that you can dip into when needed.

GO FULLY COMP AND PAY LESS

You do need fully comprehensive motor cover. This protects your own vehicle if you are in an accident, even if’s your fault.

And even better, fully comp can be cheaper than third-party fire and theft — which only covers claims against you by other drivers.

That’s because some insurers believe responsible drivers are more likely to select full cover.

Always use a comparison website such as GoCompare, CompareThe Market or MoneySuperMarket.

If you don’t have internet access, find an independent broker by calling the British Insurance Brokers’ Association on 0370 950 1790.

Check you are happy with the excess you’ll have to pay too. Some seemingly cheap deals force you to pay up to £500 of any claim.

You don’t need all the pricey extras that insurers flog. Some, such as breakdown and personal accident cover, are already included in many standard policies.

Steer clear of key cover. This covers the costs if you lock yourself out of your car or lose the keys. It’s cheap at around £10 to £20 per year — but payouts can be capped at just £150.

And at Esure, which charges up to £20, just one driver had claimed for every 100 policies sold, according to the Financial Conduct Authority. Ageas had the same claims rate — and then rejected one in five.

Road sense: Fully comp motor cover can be cheaper than third-party fire and theft as some insurers believe responsible drivers are more likely to select full cover

Far better to put your money into a savings pot for emergencies.

Esure says it pays out £350 to £400 on the average claim, demonstrating the value its product provides.

Ageas did not provide a comment on its policies.

Breakdown cover is sold as a pricey extra on a car cover policy. Basic roadside assistance from the RAC costs £40 a year — but some companies charge up to £142 and provide little extra.

If the breakdown cover is listed as ‘free’ with a standard car policy, check that the premiums match the best on the market.

Insurance top-ups that cover broken windscreens often cost £50 a year — even though repairing a small chip can cost just £36.

Some policies charge a £75 excess to replace a windscreen at the roadside, even though you can have it done for £170. Insurers will try to sell you personal accident cover as an extra — but most fully comp policies pay out as standard if you’re disabled through serious injury. You typically get around £5,000.

Some insurers charge around £25 extra for a higher lump sum. This can give you £20,000 more if you’re badly injured — but sometimes it’s as little as £500, with no extra payout for injuries considered less severe, such as losing a finger.

Brian Brown, of insurance analysts Defaqto, says: ‘With add-ons, it’s really important to look at the small print. For key cover, breakdown top-ups and personal injury cover, some policies cover only the policyholder, and won’t cover your son and daughter — even if they’re a named driver.’

Your employer may cover loss of earnings, anyway, through workplace income protection or accident sickness plans.

Get life insurance if you have a partner or children who rely on your income

AVOID CHECKOUT WARRANTIES

You should add cover for ‘personal possessions outside the house’ to your home insurance if you own expensive items such as bikes, smartphones and laptops.

Cover against theft or loss away from home typically adds £20 to £40 a year to your premium, depending on the value of the items.

If you pay for your bank account, check whether mobile phone insurance is included. There is no point doubling up on your cover.

Get extra cover on your belongings by putting big purchases on a credit card and then paying it off immediately. Under Section 75 of the Consumer Credit Act, the card company will be jointly liable with the retailer if something goes wrong with the purchase.

You shouldn’t spend extra money at the checkout to extend the warranty on furniture, TVs and electronics — or for product breakdown cover.

Three-year breakdown cover against a £500 Panasonic TV from Argos, for example, costs £110 — adding a fifth to the price.

Argos says its product care ‘provides choice and assurance’.

James Daley, of product analysts Fairer Finance, says: ‘Extended warranties and other insurance sold at the till have little value, are over-priced, and usually consumer law protects you just as well.

‘And if you buy an expensive TV or washing machine, you don’t expect it to break quickly.’

Many firms including Bosch, Miele, Samsung and John Lewis now offer two-year warranties as standard.

You can then demand a replacement or repair for faulty items from the retailer for up to six years (five in Scotland) under the Consumer Rights Act. After six months, you must prove there was a fault when you bought the item.

Separate policies to cover theft and accidental damage to your gadgets are seldom good value at around £70 a year. Some won’t cover phones that are more than six months old. Others won’t pay out if your phone is stolen abroad.

Brian Brown, of Defaqto, says: ‘I have three children and their phones are on the home insurance because separate policies would be more expensive.’

The downside is that claiming on a home policy means paying an excess and risking any no-claims discount. Standalone mobile insurance can also cover breakdowns, while home insurance won’t.

Handbag insurance is sold as an add-on to car insurance. It’s not that pricey, at £10 or £20 per year, but the payout can be capped at £350 for the bag and contents. Add it to your home insurance instead.

l.milner@dailymail.co.uk

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