Love Is Not Enough: A Smart Woman’s Guide to Money. Merryn Webb Somerset
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things that have happened to people or that could happen to people. There are stories of people breaking their legs in seven places on skiing holidays and having to be airlifted back to Britain; stories of families having to spend their whole holidays in the same clothes because their suitcases have been lost; stories of wretched cat owners who can’t afford the bills for pet surgery after a car accident; stories of brides spilling red ink all over their £3,000 dresses; stories of people mugged in the street and losing £400 worth of items from their handbags and so on and so on. It’s miserable stuff. But there is a common thread in all these tales of woe: the people in question have apparently not had enough insurance to ‘protect’ them financially from calamity. Had they had the correct travel insurance, pet insurance, wedding insurance or contents insurance, we are told, things would have been so much better. All these stories, as you will probably have guessed, are placed in the press by insurance companies with one aim – to scare you into thinking you need to buy more and more insurance. If they had their way we wouldn’t leave the house without being insured against everything from the front door shutting on our fingers and dropping our lipsticks down the drain at pedestrian crossings to being abducted by aliens outside Tesco on a Saturday morning.
Bad banks
Banks are businesses. Their job is to make money out of you. That’s fine except for when they do it unfairly. Which they do. They market products in a deliberately confusing way so that you open accounts without realizing that you will be penalized for withdrawals or without understanding that their special bonus interest rates last for only six months. They charge you very little when you are in credit but then go bananas charging you for every tiny slip they can when you are not in credit: going 10p overdrawn can cost you £25, as can paying a credit card bill a day late – the high street banks are said to generate about £1 billion of their annual profits from penalty charges alone. They hide behind technology, stating that they need up to five working days to transfer your money for you when in reality it takes about two seconds (this works for them because they then don’t have to pay you interest on the money during the five days they categorize it as in transit). They try to scam you into thinking you have to foot the bill when your bank account is used fraudulently when you don’t: you only have to pay the first £50 unless they can actually prove that you were negligent with your details. And of course when you complain they think that if they ignore you you will go away. You probably can’t change much of this (though you should keep complaining wherever appropriate – when pushed, banks often refund penalty charges for example) but you can take away a few lessons from it: first, always read the small print, and second, never ever trust a bank.
Insurance should be a simple business. Basically it works by offering you cover against injury or loss in pretty much any situation, in return for an annual or monthly payment (the premium). The insurer works out your premium by assessing the risk of something nasty happening (you crashing your car, for instance) and what it will cost to pay for the damage. In some cases having this kind of protection makes sense but it all depends on the premiums you have to pay (i.e. the cost of the insurance), the flexibility of the policy and how likely it is ever to pay out. You need some insurance – some of it is compulsory anyway – but most of it is overpriced and underused. Buying it is often simply no better a use of your hard-earned cash than buying a coat in the January sales that you never wear. You would, in the main, be better off opening a savings account (call it your Calamity Account) and putting all the money you might have spent on insurance into it. Then, if you have a disaster of the kind we are so often warned about, you will have the cash to cover it and if you do not you will soon find you have a tidy – and growing – sum of money to keep. My bet is that your account will rarely be empty.
Below I’ve made a list of some of the insurances the financial services business thinks you should have (it’s not a comprehensive list – they’re always coming up with more) and looked at whether it’s a good idea to have them or if they are just another clever wheeze to part you from your money. Basically, you should only be buying insurance for things you cannot replace, pay for, or forgo without suffering real pain.
Do you need it?
Life insurance? Sometimes
Very often it makes sense to insure against the really big calamities. Small disasters you can swallow from your income; really big ones you probably can’t. However, that doesn’t automatically mean you need life insurance. Yes, if you have a non-working partner and children you need to provide for, but if you have no dependants you just don’t: if you die a lot of people will probably be very upset but as it won’t make a financial difference to anyone why spend your money on insurance now? What difference will it make whether your mortgage is paid or not when you are dead? Put the money in a savings account instead. If you do have dependants it is different – you will probably feel that you want to have some insurance to cover them if something awful does happen. However, you may not need to take out a life insurance policy. Insurance salesmen are big on emotional blackmail. You need to be stuffed up to the eyeballs with life insurance, they will tell you, to ‘protect your family’ (‘How would your family cope without you and your income?’ ‘What happens if the unthinkable happens?’ ‘How much do you matter?’), but don’t be scared into giving them your money when you don’t need to. Don’t forget they get hefty commissions on every policy they sell.
If you check your contract at work carefully you will probably find, if you are a white-collar worker, that you have life cover at three to four times your salary as standard and that a pension may be paid to your dependants. If so, and you have other savings, that may well be enough. If you are not the main breadwinner in the family you also won’t need much insurance, and if you are at or near retirement you shouldn’t need it either. By then you should be free financially (mortgage paid, pension sorted, children independent): your death will not bring financial hardship to those around you so you don’t need to insure against it.
If you are the main breadwinner, are not near retirement and have neither work-related insurance nor sufficient savings what should you do? The answer, I think, is to get the simplest and cheapest form of insurance possible. This is term assurance, which works like this. You choose how long the policy runs for (it can be anything from 1 to 30 years but you should probably time it to run until your retirement or the date your mortgage will be paid off). You then pay annual premiums and if you die within the time specified the insurer will pay out a lump sum to your dependants. The alternative is to buy whole of life insurance, which pays out whenever you die rather than just within a set term. This is much more expensive and I think probably pointless: the idea of the term is that you are covered for as long as you need to be (during the 20–30-year period when other people would really suffer financially if you died) so why pay more to be covered when you no longer need to be?
Car insurance? Yes
Some insurances you have to have and if you drive car insurance is one of them, so all you have to worry about is finding the cheapest policy you possibly can. This is much easier than it used to be. Before the days of the Internet comparing prices meant calling ten different insurers and then choosing the cheapest. Most people never bothered – it was just too boring – and that meant that insurers got into the habit of charging you pretty much what they fancied. Not any more. Today you can log on to a variety of websites such as www.moneyfacts.co.uk, or www.insuresupermarket.com and www.confused.com and compare prices in a matter of minutes. Make sure you do: if you buy without comparing you’ll just be throwing money away. The same goes for every insurance I mention here.
There are distracting gimmicks aplenty in the insurance industry and a new entry to the car insurance market is women-only car insurance. This is an idea based on the fact that women are less dangerous drivers than men and should therefore be able to get cheaper car insurance than men. Both these things are true (Home Office figures show that 96% of dangerous driving offences are committed by men) but that doesn’t mean that buying your insurance from a women-only outfit such as Sheila’s Wheels or Diamond will get you a better deal. All insurers base their