Don't Double Up On Cover

How to avoid paying twice for the same insurance.

This article was first sent to Fools as an email in our 'Afternoon' series.

With purse strings continuing to tighten as the credit crunch bites, more and more of us will be looking at ways to cut back, and poring over our budgets and bank statements looking for unnecessary standing orders and direct debits that we can eliminate.

But while under-used gym membership and rarely-read magazine subscriptions may be among the first things to go, many of us could actually be throwing away thousands of pounds on insurance policies that double up on cover that we already have.

Avoid Shelling Out For Unnecessary Insurance

New findings from insurer Esure show that nearly a quarter of us buy additional in-store insurance to cover the loss, damage or theft of items such as jewellery, a new watch, or a mobile phone, despite having the relevant cover as part of our home contents insurance.

According to Esure's figures, more than 3.3 million adults in the UK already have personal possessions cover as part of their policy -- which means they are essentially buying a financial product they have no need for.

Given that a standalone mobile phone insurance policy could, for example, load between £5 and £10 onto your monthly bill, such cover could add a hefty sum to your shopping bill at at time when household finances are being stretched to the limit.

In fact, it is arguable that mobile cover of this nature makes little financial sense when you consider that if the phone is lost, stolen or damaged, a replacement handset can be purchased for little more than one months' insurance payment.

That said, if the thief then goes on to make hours of expensive international calls, mobile phone insurance is the only cover that will pay up.

How To Avoid The Doubling Up Trap

Before you hit the shops over the next few weeks, take the time to check your home insurance policy and find out what is and is not covered in your personal possessions cover.
Consider adding personal possessions cover away from the home, as for a small premium, this will cover all of your valuables while you're out and about, including handbags, jewellery and mobile phones.
Note that most policies with personal possessions cover extend this cover to the entire family. This means that children at home or away at university may well be covered.
Also check before taking out additional baggage cover with your travel insurance, as you may already be covered if you have personal belongings cover with your home insurance

Cutting Back On Cover

While standalone policies such as mobile phone insurance may be among the first things to go now that you have less disposable cash, you do need to think carefully before ditching other forms of cover.

Recent findings from business analyst Deloitte, found that more than a quarter of people are trimming back policies to the bare essentials, with one in five cutting back on payment protection insurance (PPI), and 18 per cent downgrading from comprehensive motor insurance to third party cover.

Travel insurance, pet insurance and health insurance also look to face cuts, according to the findings.

But while you may try to find ways to reduce spending, you need to think carefully about which types of insurance you need in a downturn, as a short-term saving could cost a lot should things go wrong.

Don't Scrimp On Protection

One area you can't afford to cut back on in the current climate is protection, as if you are unfortunate enough to have an accident, fall ill, or lose your job, you are going to need insurance.

The first product to consider is income protection -- a tax-free insurance that pays out tax-free replacement income in the event of ill-health.

Many people will opt for mortgage payment protection insurance (MPPI) rather than income protection, but MPPI plans can be inferior, and may even cost you more -- particularly if you are young and healthy.

Typically, MPPI policies will only pay out for one year and include a number of exclusions, and the conditions of the policy can be changed at short notice.

PPI, a similar policy to MPPI, but which covers other debts, such as repayments on loans or credit cards, is also notoriously unreliable when it comes to paying out in the event of a claim, and can often be overpriced and mis-sold.

That said, if you do qualify for a payment, the short-term lifeline it offers can help you to survive a financial crisis, so it should not be dismissed out of hand.

One option is to buy cover from standalone providers, which can be cheaper, but the cover may not be as comprehensive - so do check the terms and conditions.

Avoid Duplicating On Protection Policies

Further to income protection, you may want to consider life cover with a good critical illness policy, which pays out a lump sum if the policyholder is diagnosed with specific serious illnesses; the two tend to be sold together.

But once again, ensure you are not buying unnecessary cover, as if you are single and have no dependants, life insurance might not be all that relevant for you.

Also note that most employers offer death in service - typically benefits of four times' salary. So check what is offered by your employer in terms of workplace benefits, such as death in service and income replacement, before taking out any protection product -- to avoid doubling up on cover you already have.

Only Opt For Insurance You Need

While insurance is essential for financial security and all round peace of mind, it is important you only opt for for a level of cover relevant to your needs -- and at the best available price.

Under no circumstance should you do away with your buildings and motor insurance, as you are legally required to have 3^rd party insurance if you own a car and buildings cover your own home.

Other policies are worth having, but not everyone needs everything: the key to buying insurance is only to insure against risk you cannot afford to take.

Cut The Costs Of Insurance

Shop around for your policies and be prepared to switch providers on a regular basis.
Pay for your policies annually rather than monthly.
Increase your voluntary excess.

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