Don't fall for these insurance fairytales
Whether you’re buying home, travel, car or life insurance you’re likely to have heard some myths about the type of cover you will get. But you need to be able to separate the fact from the fiction to be confident that you know what you’re buying and can rely on the cover should you need to make a claim.
When you buy insurance you should be given a key policy information document explaining what the insurance does and doesn’t cover. It’s important to ask the person selling you the policy if you don’t understand anything as misunderstandings could lead to the insurance company refusing to pay out when you make a claim.
However, many people don’t get around to reading the small print and this is how some insurance myths have become confused with facts over the years. Research by Aviva found that 33% of people never fully read their home insurance policy and 25% of people don’t know what it covers them for.
Peter Gerrard, head of insurance at moneyextra.com, says: “Nobody wants to have to claim on insurance, and it is only ever bought as a peace of mind purchase. However, it is likely that many policyholders aren’t fully aware of what is covered within their motor, home and travel insurance policies, and don’t view their policies from one renewal date to the next.”
We’ve looked at some of the most common myths to help you untangle the truth from the fiction.
Houses in more affluent areas are cheaper to insure
False: It is often thought that if you live in an affluent area, you are less likely to be a victim of crime. However, some desirable areas are classed as high risk by insurance companies because thieves target properties that are likely to contain more expensive items such as jewellery, flatscreen TVs and laptops.
Julie Owens, head of home insurance at moneysupermarket.com, says: “If your property is classified as being in a ‘high-risk’ area – whether that be for crime, or something like flooding or subsidence – it could be reflected by a higher insurance premium.”
The contents of your garden are covered by your home insurance
False: It is often assumed cover for your garden is automatically included as part of your home insurance, however insurers are often very specific in the policy small print about what is and isn’t covered as part of contents and outbuildings.
Expensive items such as tools and bicycles left lying around in your garden might not be covered by some providers unless they’re locked away securely.
Your insurance company can turn down your claim if you have been negligent
True: Insurance firms expect policyholders to take “reasonable care” of their property or possessions. According to Aviva, leaving your home unlocked while you pop out to the shops or leaving windows open while you’re out could be classed as negligent – resulting in a home insurance claim for burglary being turned down.
Similar clauses are also written in the small print of travel insurance policies so don’t expect to be covered if you leave your stuff on the beach while you go swimming and return to find it’s been swiped by thieves.
Overweight people get charged more for life insurance
True: The higher the risk of someone dying, the more likely an insurance company will increase the client’s premium. This is known as ‘loading’ the policy.
“In particular, insurance companies look at family history, medical health and lifestyle (such as dangerous hobbies, occupations, alcohol and drug use),” explains Matt Morris, spokesperson for broker LifeSearch. “If someone is obese they may find their policy loaded, especially if they have other problems such as high blood pressure.”
You don’t need life insurance unless you’re married or have children
True: You only need life insurance if you have dependants who rely on your income, such as a spouse or child. The idea is that if you died the insurance payout would stop your family from struggling financially and enable them to stay in the family home or children continue in private or further education.
“Most people who think they need life insurance would actually be better off with a different type of policy, such as income protection, if they don’t have any dependants,” says Morris.
Life insurance won’t pay out if you commit suicide
False: Generally a life insurance policy will not pay out if the policyholder commits suicide in the first 12 months of the policy but it will pay out after that. This is so insurers can guard against clients insuring themselves to the hilt, then taking their lives to get their family out of financial difficulties.
However, in some cases suicide claims are turned down because there has been non-disclosure about the mental health of the insured and whether they have been receiving medical or psychiatric treatment.
You don’t need travel insurance if you’re travelling to Europe and have an EHIC card
False: It is a common misconception that the EHIC (European Health Insurance Card) is a replacement for travel insurance when holidaying within the European Union. In the event of illness or an accident, holidaymakers can present the card to secure the same state-provided medical treatment as a local resident.
However, like the E111 previously, the EHIC only offers relatively low-level financial reimbursement for basic medical bills, and holidaymakers should not view it as a replacement for travel insurance.
A good travel insurance policy will also cover you for lost or stolen possessions, holiday cancellation, personal liability and a range of other costly possibilities.
You won’t be covered if you are drunk and have an accident
True: It is a little known fact that travel insurance policies have a clause stating if you are under the influence of alcohol or drugs at the time of an incident, your policy may be rendered invalid.
It’s normally OK to have a drink or two, but if you are intoxicated and lose your bag or have an accident you might find your insurance policy doesn’t pay out. Skiers returning to the slopes after a spot of après-ski should take particular note of this clause.
Third-party, fire and theft car insurance cover is always cheaper than fully comprehensive cover
False: Traditionally motorists have assumed a third-party only policy will be cheaper than going fully comprehensive because of the reduced levels of cover.
But in recent years drivers with a more risky profile, such as younger motorists, have opted for this cover to keep insurance costs down. Providers have reacted to this perceived increase in risk by driving up the cost of third-party only cover.
Research by Moneysupermarket.com has found that on average third-party only cover for a driver under the age of 21 is £1,434 a year, which is 50% more expensive than opting for fully comprehensive insurance at £955.
You won’t be able to get insurance if you have motoring convictions
False: Having convictions for speeding, using your mobile behind the wheel or even careless driving won’t render you totally uninsurable, but it will make getting insurance more difficult – and expensive.
In a survey of eight insurers, AA Insurance found that one company refused to quote for a single mobile telephone offence (CU80) while the remaining seven increased premiums by between 4.2% and 18.1%. If a simultaneous careless driving offence (CD10) is added, half of the insurers refused to quote while others imposed premium increases of up to 50.5%.
Steve Sweeney, head of motor insurance at moneysupermarket.com, says: “Motorists may believe having a motor conviction renders them uninsurable. Although this can occur in some severe cases, it is important to note many providers will still insure you in cases such as drink driving, speeding, and mobile use while driving - but you are likely to see a significant hike in the cost of your motor insurance premium.”
Generally thought of as being interchangeable with life assurance, but isn’t. Life insurance insures you for a specific period of time, at a premium fixed by your age, health and the amount the life is insured for. If you die while the policy is in force, the insurance company pays the claim. However, if you survive to the end of the term or cease paying the premiums, the policy is finished and has no remaining value whatsoever as it only has any value if you have a claim. For this reason, life insurance is much cheaper than life assurance (also called whole of life).
This is used to compare interest rates for borrowing. It is the total (or “gross”) interest you’ll pay over the life of a loan, including charges and fees. For credit cards where interest is charged at more frequent intervals, the APR includes a “compounding” effect (paying interest on interest). So for a credit card charging 2% interest a month (equating to 24% a year), the APR would actually be 26.82%.