Avoid these insurance rip-offs!

Here's how to avoid paying over the odds for insurance - and still get the cover you need.

As the credit crunch continues to munch into your savings, you might be tempted to cut back on some of the cover you've taken out.

If you are thinking of getting rid of one of your insurance policies, read this article first, to find out why ditching the wrong insurance could cost you an arm and a leg.

So what can you do to cut your insurance costs without making yourself vulnerable?

Well, you can dodge the exclusions, extra fees and charges that regularly pop up. Here, I'm going to highlight four pitfalls to avoid - and show you how to get adequate cover at the best possible price.

Hunt the exclusion!

Insurance small print is often extremely boring, complicated and several pages long. Unfortunately, the various exclusions that apply to your policy are often hidden somewhere in the middle of it.

As a result, many people shell out hundreds of pounds on insurance only to discover - when disaster strikes - that they're not properly covered.

Of course, exclusions are a part of every type of insurance, but I think travel cover demonstrates the problem particularly well. Here are just some of the reasons you might not be covered while on holiday:

 - You're doing adventure sports;

 - You're taking part in an activity that's not professionally supervised;

 - You've bought 'extreme sports' cover, but haven't complied with all the conditions;

 - You're drunk;

 - You've bought the policy too late to qualify for cancellation cover;

 - You've traveled to a country against Foreign Office advice.

Urgh!

The solution?

Read the small print all the way through. Then get someone else to read it, to make sure you understand it properly!

Highlighting the exclusions as you go along is a good way to help you remember them.

Loyalty doesn't pay

Insurers are always looking for ways to bring in new money. That's why it's the new customers who very often get the best deals and discounted rates.

Take home insurance as an example. A couple of years ago, my policy was up for renewal. I was about to sign the renewal form when I realised, with a jolt, that my annual premium had nearly doubled.

Why? Because I wasn't a new customer anymore, so they thought they'd target their juicy incentives elsewhere.

Needless to say, I ended up getting a much better deal - as a new customer - elsewhere.

The solution?

Two words: Shop around. Use online comparison tables to scour the market for the best possible deal when your old one comes to an end.

Some insurers (like Direct Line) choose not to be included on the comparison websites, so it's worth approaching them directly to see what they can offer.

Monthly payment misery

Once you've found a reasonably-priced insurance package that meets your needs, you'll probably be offered the chance to pay in monthly instalments.

People often choose to pay for car insurance in this way, because the hefty annual bill can be difficult to find all in one go. However, you should avoid monthly payment schemes if at all possible.

This is because your insurer is effectively lending you the money, and will charge you a hefty interest rate for the privilege. And I mean hefty - 30% APR or even more.

The solution?

If at all possible, pay the full annual amount upfront. If you don't have the cash to hand, consider paying on 0% purchases credit card.

Just make sure you clear the balance before the 0% period comes to an end!

Doubling up on cover

Don't make the mistake of doubling up on cover and spending more than you need.

Personal possessions cover is a good example of this. Many of us buy extra insurance in-store to cover the loss, damage or theft of valuable items like jewellery.

However, millions of us already have personal possessions cover as part of our home insurance policies - meaning that these sort of items are already covered.

People also tend to double up on mobile phone cover. The insurance you're encouraged to buy with a new phone is often bad value and chock-full of exclusions.

So if your phone is already covered by your home insurance, you're shelling out unnecessarily for on a pricy policy that might not even meet your needs!

The solution?

Check your home insurance policy and find out what is and isn't covered by your personal possessions cover (inside and outside the home).

It's also worth checking your employment contract to see if any insurance - like private medical insurance - is included as a benefit.

To find out whether you're paying twice for insurance, read Don't double up on cover, by my colleague Esther Shaw.

More: The risks of buying cheap insurance | Don't make this mistake with your life cover

Compare car insurance and home insurance with lovemoney.com.

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