Do You Need That, Really?

A guest post by British author Louise Tillotson. Some terms are relevant to UK.

Last time, I talked about some ways in which to make or save money: selling unwanted items in a yard sale, changing to a cheaper utility provider, using rewards credit cards to get money back on what you spend, and using coupons to get money off your groceries.

In this post I’m going to be talking about some of the things you might be paying for which you really don’t need.

Insurance

Pretty much everything you buy these days comes with an offer of insurance. Some things are worth insuring; your car, home, pets, life etc. Insurance for these shouldn’t be scrimped on (although don’t accept the first quote – shop around!). But do you really need boiler insurance? Mobile phone cover? Payment protection? Credit card loss insurance? Identity theft protection?

More often than not, the things which these ‘lesser’ insurances apparently cover are included in a regular premium, or they carry conditions which are impossible to meet, and therefore never result in a payout if you try to make a claim.

Take Identity Theft insurance as an example. An ID insurer will tell you that for a ‘modest’ premium they will frequently check your credit report and warn you of any irregular activity on there. Sounds great, right? Of course, until you realize that you can do the exact same thing at a fraction of the cost of the premium. Simply register with the credit reference agencies and you can look at your credit reports any time you like.

Another tactic used to sell ID insurance is the promise of thousands of pounds worth of protection in the event of fraud – but you get that anyway, provided fraud can be proven. If your credit card or bank account has been breached by an identity thief and you can prove it, your personal liability is just £50 – less than the price of a premium and it’s often waived by the bank anyway.

So the moral of this is – always check what’s already included in the price before you buy any extras!

Bank accounts with ‘perks’

It’s a growing trend – banks trying to entice new customers to take out a packaged current account which offers ‘free’ breakdown cover, travel insurance or some such benefit. But they’re not really free! These accounts usually charge a monthly fee or have incredibly high charges applied, so in reality you’re paying through the nose for a ‘free’ insurance policy. In reality you’re better off getting a basic bank account and sourcing your own travel or breakdown insurance.

Credit card interest

This is a particular peeve of mine; most credit card providers have what’s known as a negative payment hierarchy. This means that the least expensive aspect of your balance is cleared first, which is the one carrying the lowest interest rate.

For example, if you’ve got a 0% balance transfer card, which carries a 16.9% interest rate on purchases, then anything you pay back onto the card will go towards paying off the balance transfer portion, leaving the interest on your purchases balance to steadily grow to epic proportions.

Of course, you can avoid paying interest if you pay off in full each month, but if you can’t do that, then don’t use a balance transfer card for purchases (and vice versa). Or look for a card with a positive payment order, which will take care of the high interest generators first.

Extended Warranties

Essentially it’s another form of insurance, primarily pushed towards buyers of electrical appliances. For large items like refrigerators and washing machines, an extended warranty can be useful and worth the money, but if you’re offered one with a fairly cheap kettle or iron, is it still worth it? If you buy recognized brands of appliances the chances are they won’t go wrong in the 3 to 5 years the extended warranty lasts for. And if you buy a cheaper brand, you may as well just buy a new appliance rather than going through the hassle of making a claim, which you’d probably have to pay an excess towards anyway.

It’s also worth knowing that if you do decide to take out product insurance, you don’t have to get it from the store that sells you the item. A number of firms offer impartial product cover for much less than the store premium price.

And of course, certain things may be included in your home insurance policy. So again, don’t buy any extra cover until you’ve checked what you already have!

Louise Tillotson is a British financial writer who works for Moneysupermarket, a UK price comparison site, and has written for a number of financial websites both sides of the “pond”.