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Too much cover (Irish Independent)

04 November 2011

Financial and consumer experts warn that being fully insured for most eventualities can be very expensive and some policies may not even be useful to your situation

Multi-millionaire and 'Lord of the Dance' star Michael Flatley probably didn't think twice before insuring his feet for upwards of €32m not so long ago.

However, for the rest of us mere mortals, being fully insured for most eventualities can be expensive.

Most of this insurance is undoubtedly worthwhile, if not legally required, such as policies for the home, car, travel and health.

But could you be over-insured? Could you have insurance policies that you don't actually need?

"It has been clear for quite some time now that many insurance policies sold to consumers are unnecessary and expensive, and provide poor if any return for significant outlay," says Dermott Jewell, chief executive of the Consumers' Association of Ireland (CAI).

Mr Jewell says research by the CAI's magazine, "Consumer Choice", has consistently shown that consumers shouldn't just renew any insurance policy.

"They not only should, but must look for a better deal, every time," he said.

This advice also extends to policies you should simply not renew if you already have them.

And it's hard to think of a financial product that has been as much maligned as payment protection insurance (PPI).

This product is designed to cover your repayments on a loan if you suffer from an accident, illness, death or redundancy.

Many lenders offer this sort of policy when you apply for a loan but might say, or at least imply, that you have to take this cover. You don't. It's your choice.

While the monthly repayments may seem reasonable, the cost adds up.

For example, if you take out a €10,000 loan over five years, you could pay as much as €2,000 in total in PPI, depending on your lender.

The Financial Regulator advises consumers to consider carefully whether they need it.

"PPI may not be necessary for you if you have other insurance like life, serious illness, or income protection insurance, or if you have sickness benefits through your job," a spokeswoman said.

"And if you are a contract or temporary worker, you may not be eligible for this cover."

Another form of PPI is mortgage repayment protection. This product is likely to become more attractive as unemployment and mass redundancies loom large amid the sharp economic downturn.

But it's expensive.

Bank of Ireland offers such cover at a rate of €4.75 per €100 per month of mortgage repayments. So, if your mortgage repayments are €1,500 a month, you will be shelling out €71 a month, or €855 a year just for this cover.

In addition, a claim under mortgage repayment protection usually lasts for a maximum of 12 months, and it can be very hard to get a payout if you make a claim.

"To get a redundancy claim for 12 months, they have to be unable to find any job of any kind for each of the 12 months," says Liam Ferguson of brokers Ferguson and Associates.

The premiums paid don't qualify for tax relief either.

Mr Ferguson suggests taking out income protection as an alternative, but only if your employment is secure and the likelihood of redundancy is remote.

"While income protection won't cover redundancy, it will pay an accident or illness claim right up to your chosen retirement age, not just for 12 months," he says. "Premiums also qualify for tax relief at your highest rate."

Mortgage repayment protection insurance should not be confused with mortgage protection insurance, which is compulsory for mortgage holders under the age of 50, or if your mortgage is not on an investment property.

But even here, some people can be over-insured. Some experts suggest that if you are single and/or have no dependants, you should stick to the most basic and cheapest form of mortgage protection policy you can get.

Mr Ferguson says he has heard of cases where single people were advised to take out basic life insurance or whole-of-life policies to cover their mortgage at a far-higher premium than the equivalent mortgage protection policy.

"Such a policy would produce a surplus of cover in the event of death. If you have no dependants, why would you want this?" he asks. Health insurance remains very popular, with many now viewing it as essential as other forms of insurance.

But at least one financial expert believes some aspects of health insurance are a waste of money.

Brendan Burgess, founder of personal finance website Askaboutmoney.com, says that insurance cover for routine medical expenses such as visits to the GP is "nonsense".

"You should only be buying insurance for the big expenses which might hit you out of the blue, not for doctor's visits," he says.

One area of insurance you definitely shouldn't skimp on is home insurance.

Homeowners were warned recently not to under-insure their homes. Many of us are apparently assuming that the cost of rebuilding a home has fallen because the construction industry has fallen on hard times.

But according to the Society of Chartered Surveyors, the costs of rebuilding a home in Dublin, Cork, Galway, Limerick and Waterford have risen since 2007.

Its 2008 guide to home rebuilding costs shows that costs have risen the most in Cork, up 4pc, followed by Limerick at 3.75pc.