How Much Insurance Do You Really Need?

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Welcome to Merrin Talks Your Money, the personal finance edition of Merin Talks Money. In these bonus podcasts, we talk about the best strategies for making the most of your money. I'm marinzum'st Web editor at Large with Bloomberg UK Wealth.

And I'm joined Stems send your reporter and author of the Money Distilled newsletter.

Award winning, award winning Yeah, never let out those never miss out those words. Lest on question for you, John, how much is your life enshued for? Oh?

I couldn't possibly see this, which is the Mona Lisa insured for? As well as I don't know?

I don't know. I mean, this is an interesting one because I've been looking at this recently. Should my life be insured? And how much should it be insured? Foot? Because I don't think I have life insurance? What do I need to leave behind me? I didn't actually want you to answer that, John. I was more of a rhetorical question than a John, please tell me what I'm worth question. It wasn't that kind of question anyway, It's on my mind. So today we are going to talk

Thanks for having me.

What do you think I'm worth?

Oh, at least five time salary if you're a corporate employee.

Yeah, absolutely, And a lot of corporates will just give you this. It'll be in your contract that you get four or five times your salary. Yeah. Personally, I think I'm worth rather more than that, but maybe we won't get into that. Of course, what we want to do today is to talk about all the different types of insurance, what you must have, what you should have, and what might be nice to have. And as far as I know, the only one that is a legal requirement is car insurance.

Right, Yes, that's right. You've got to have at least third party insurance if you own or drive a car.

And tell us the difference between third party and fully comprehensive. I'm guessing most people know.

But third party is just it covers you if you run into somebody or run into somebody's garden more they get paid out, but fully comprehensive covers you for absolutely everything. So if you have an accident and drive into your own brick wall, you can claim on your insurance and get your car repaired.

Okay, So with third you drive into another car, your insurance covers all their costs, their medical bills, et cetera, but absolutely none of yours. You are on your own, that's right, But it's very significantly cheaper, presumably.

Yes, although I have to say a lot of insurers now don't offer it at all.

So yeah, yeah, And do you know what I found out the other day that that not everybody offers anymore. And back in the old days with car insurance, if you had your own car insurance, you were usually automatically third party covered on other people's cars. So you could just jump into someone else's car and not stealing it obviously, but with their permission, and drive off in it and be covered third party. But that doesn't seem to be the case anymore.

It certainly is with some policies. I have one like that, oh do. But I think as car insurance has got more competitive price wise with the rise and rise of comparison websites, I think some insurers are pulling back from some of these what they regard as extras.

Okay, so when we're getting car insurance, which we have to have, what should we be looking for?

I think you need to be looking for things you want and things that insurers will give you a discount if you don't have, like windscreen cover. Windscreens now, particularly in modern cars, are very expensive to replace because they've got radio, aerials and all sorts of sensors in them.

Okay, Okay, so you need a car, and what about getting insurance for young people? How's the best way to go about that? A big topic of conversation my friends.

Yes, I didn't find that a problem when I had that challenge, and one particular insurer was very keen on having young people and it was expensive, but not ruinously so, so I think that the answer is to all of these things is to shop around, and the comparison sites are the place to do that.

Okay, And can you tell us from your area of expertise why it is the current insurance has got so much more expensive so quickly. Is that to do with evs being more likely to be written off or harder to repair? Is it to do with the supply chain logistics you'se just mentioned, or is it as we sometimes read in the newspapers that those who do have insurance are paying out lot for the illegal drivers on the road.

Well, I think that's a misnomer. Merret, I must pull you up on that, I'm fraid absolutely. If you look at the last confused dot com quarterly motor Price Index, their average cost is seven hundred and twenty six pounds for the fourth quarter of last year, and that's down thirteen percent year over year. So what is curious is that prices are going down. They peaked at nine hundred and ninety five pounds. When was that so? I mean, isn't it a quarter nineteen twenty twenty three?

So that was the bit when they went up very dramatically post COVID. They went up from a much lower level than I think you're suggesting they're falling to now. So prices maybe down over a year or so, but they're still fairly comprehensively up on pre COVID levels and higher than inflation.

Well, the second quarter twenty twenty three peak only overtook the fourth quarter twenty seventeen by a few pounds. So my view is that we've had a good deal from motor insurers and that in real terms, the price has

Okay, great, So everything's absolutely fine. Your motor insurance is pretty much as it was. It's relatively easy to get. You can get third party and comprehensive cover pretty easily, and you can get the additional driver thing we were talking about earlier.

You can.

Okay, great, I feel a lot better. Right, what so, there's nothing else that's legally required. But the next insurance that you can't have to have legal requirement or not is building insurance.

Right, if you own a property, yes, it would be silly not to unless you're very wealthy and you want to stump up the rebuilding cost if something awful happens.

Okay, But the mistake that people make there is ensuring their house for the value of their house rather than for the cost of rebuilding their house. Because if your house burns down, it doesn't matter what it was worth. What matters is how much it's going to cost you to find someone to put it up again.

Correct.

Okay, And if you over insure your house, you're not going to get paid out that. You're just going to get paid what it costs to really.

Get paid the rebuilding cost. Insurance is a contract of indemnity. So the deal is you buy buildings insurance, the thing burns down or blows down, and the insuran will come along and reinstate it.

Yeah, and there was it. There was a period certainly in Edinburgh. I don't know about in other places where, particularly with older houses, when house prices were very low over the last decade or so, where people were underinsuring their houses for building insurance because it turned out that it cost more to rebuild a Georgian townhouse than it would buy one.

I think you've got to be careful with under insurance because the writer can turn around and say you've misrepresented the risk to us, and therefore you have no cover at all. So it's it's a fine line to tread and I think one needs to exercise caution.

What is the best way to figure out what the rebuilt cost of your house is? Because I know I think I went on the Rex website. I think a while ago. I've got a pretty normal house. It was just built, you know, like in the nineties, and it's one in the state in thinks there's nothing unusual about it something you can be pretty confident in what they suggested. But if you've got something about quirkier, or should you actually ask someone for a specific valuation or can you

I think there are a number of, as you mentioned, online calculators, and I think ultimately, if in doubt, if you've got a grand house and it's Georgian and it's listed and all the rest of it, I would go on to your insurer and say what would you recommend and put the ball very much in their court and they will help you because they don't want you to be underinsured.

Yeah. It feels like the kind of time you should have an insurance broker, right, Yeah, than just buying online. If you have a difficult house.

If you've got a difficult house and it doesn't fit the standard big insurers things, then I think you need to go to a large broker that specializes in these sorts of things and they will sort it for you.

Okay. Now, the other insurance that almost everybody have, which has which is not compulsory, but I'm sure pretty advisable as contents insurance, right because if your house burns down, the contents are going to be pretty valuable too. And this is the area where a lot of people underinsure and then find that they're in a whole part of trouble when something does happen.

Is that right, I think it is. And I think the other thing insurers need to see is receipts for a lot of those things that people will say they've lost, because they need evidence that you had a fifty eight character ring that's somehow melted or whatever.

But how can you have a receipt for things you inherited from your granny.

It's really difficult, And I think what you need to do there is take a photograph of it, prove that you've got it, it's in the house, it's on your hand, or something like that, and have a jeweler value it, and have that a copy of that receipt somewhere safe, what the jeweler's valuation was, and proving that you actually owned it because it was in your possession via effect.

And I suppose the other thing is that in extremists, I mean, that would work for a burglary, but if your house is burnt down, well that's going too all that's going too. I mean, should people really have an inventory of everything valuable in their house held off site.

I think they should. I mean, if you if you've got a value portfolio of bits and pieces, then I think you need to do that. And I think if you have got a high value portfolio of shuttles and bits and pieces that the insurer will insist on that.

Okay, So it isn't highly possible that you could lose everything and get almost nothing back if you haven't done this slightly horrendous sounding amount of admin.

Not quite, But I think where they get sniffy is you know the old rings and the watches, and the paintings. Some of the paintings, yeah, and that you to pay attention to. But other things like your television, your dishwasher, you'll get new for old. So in this instance it's the only insurance that isn't a contract of indemnity because you get new for old. Yeah, because they can't go out and find a two year old Snoozi washing machine or whatever it is you've just lost.

Well, there you go. Silver Linings, John, is all your vastly valuable collection of inherited jewelry, probably for graph re seated valued and with the type of store offside. I know you're efficient when it come to admin.

I actually believe or not I do. My wife did lose or not or one expensive handbag was stolen many years ago, and that was something we actually did have a receipt for because it was one of the kind of few things that I guess i'd sort of turned around to the insurance said, because they ask you if something's worth over a certain amount, and so it was

It's a shame, isn't it. I mean, Kevin, you don't know this, but one of the things that we try and do on this podcast is save people from ADMIN. And now look what we've done.

Well, I guess the thing with the ADMIN is you don't want the ADMIN at the point where you need it. It's like one of these things we are you want to have the inventory. They saw that it's not a total if the wast does happen. I guess that's the other point of insurance. Center is mostly there for you're trying to show yourself against catastrophes rather than mayor inconveniencies.

Really yeah, okay, fair enough, all right, So what's up next? So we've we've already spent a pile on motor insurance, we spent a pile of building insurance. We've probably spent rather too much on content insurance. After this conversation, what's the next insurance? On our last?

Kevin Well, I imagine if you've got a favorite dog or a catch.

I do have a favorite dog and when he was run over by a car, we did not have insurance. If you ever come to Scotland, I will introduce you to the most expensive border terrier in the world.

So I would recommend people have pet insurance because me too. You know, if a dog does run in the road and need surgery on a leg, that's the same as you going into a private hospital and having the same So it's several thousand pounds, So a dog's leg is about three grand. It's the same as a human leg. And the other thing that you will find if a dog has an accident or a cat and has an operation,

Well, all I would say is that I would be absolutely thrilled if my dog had only broken one leg and only stayed in hospital for one night. Fact, he broke everyone liked to know. He broke two hips leg in one place, six ribs, and had a hernia, and he was in for nearly two weeks. Enjoying the sums on that one. As I say, most expensive border terrier in the entire world. He's available for viewing tenor ago.

This six million dollar dog kill.

Exactly exactly. Let's pick that one up, though, because you could self ensure with this. You could say, well, my pet insurance is sixty good a month or whatever, and I'm just going to put that into a high interest bank account and I'm going to leave it until something happens. But I think from what I know, and it sounds like you know as well, Kevin, sorry about that, is that that's probably never going to be enough.

I don't think it is, because one of the things that's interesting about the veterinary world in the UK is that the prices go up a bit more than CPI.

Is there a size of pet where you would suggest size, you know, like like for example, I mean, uh, like we've voided things like budgies and hamsters, and I mean those I must have been don't get insurance for. I won't tell you about the time I got a hysterectomy done in a hamster. I will just part that one for future humiliation. But I'm just saying so I can see the argument for dogs definitely, and obviously horses. I

I don't know, John, I would say cats, yes, But hamsters. We have a friend who's event and you know she says about hamsters.

I can't imagine she says.

Twenty quid for a new one.

That's a compassionate like to hear from her medical professionals.

Anyway, moving on, moving on, Given how expensive. It is just to keep a dog in hospital overnight. And by the way I get it, there's the there's the oxygen masks, and the intensive care nurses and the special rum and all that. It's expensive. But if we're going to take out insurance for our border terriers for this, clearly I think you would suggest, Kevin, that we should have our own medical insurance as well.

I think that's sensible. And companies like Axer and Aviva have been reporting that take up of their private medical care offering has been booming in recent years.

Yeah, well it would be what with the state of the NHS and all that. But the only problem there is that everyone's going private. Eventually you end up with the same cues for going private, right.

I don't know, try and live a healthy life, so I don't know.

Anyway, it's also very expensive. I mean, you know, you're talking for someone in their forties or fifties, you're talking maybe two or three thousand pounds a year for private medical insurance. So is there a case there for self insuring for saying, okay, do you know what, I'm just going to put that money into a bank account and if I do need a hit replacement for five grand or whatever it is, the money you'll be there and I haven't wasted it on insurance.

Yeah, I think I think that's right. I think where it does come into play is if you had some you know, really bad disease or cancer or something that's going to cost considerably more and need urgent treatment more to the point, then I think that's where private health

So technically speaking, I guess the NH says there, that's your catastrophe insurance. So if something like an ane type thing happens, then you're kind of covert. And the flip side of that is the the sort of things you

Have a bad stop which pets don't.

Yeah, yeah, exactly, although I would.

Say, can you really rely on NHS any anymore? I mean, I know where I live in Scotland we do not have private anys, but certainly in the South that are private an is now. An't that where you can go and be saying oh in under fourteen hours?

Yeah, I do. I think it's a trick you want. And I can see why demands going up your open bank accounts now and they'll do those GPE out of services that you can just fall out and zoom appointment the GP and I kind of thing I can see is really useful because getting a GP appointment, even for just a you know, I cannot be assured part in the head that does not normally doesn't. That's fairly hard

Yeah, I mean, if you break your leg, you want to be able to see a doctor before it resets itself in the wrong way, don't you definably? Okay, moving on, so medical insurance if you can there there is some possibility to self ensure that. What next we talk about We talked about the value of my life, which was nice, right, But life insurance a lot of people will get it with work. Everyone should check their contracts, right, they should. Yeah, And if you don't have it through work.

I think you need to assess why you need it. I think if you're in a couple and you've got a mortgage, then a bit of life insurance to cover that outstanding mortgage should one of you keel over is a good idea, and it's not hugely expensive for most people with most mortgages.

So if you're really young and you're in a relationship and you have a mortgage. In fact, even if you're not in a relationship and you have a mortgage, quite nice to leave behind you a paid off house for somebody, wouldn't it.

Well, yes, if you've made other provisions.

But less urgent. Okay, So life insurance yes. And now here's another that a lot of people have but may or may not be necessary, which is critical illness insurance. What about that?

I think something like that could be really useful for the self employed. So if you become if you're self employed and you suddenly can't do whatever you normally do, whether it's plumbing or a voiceover or whatever, because you've got a broken leg or actually you've been diagnosed with something awful. Then I think, I think that's well worth considering. But it's not cheap.

It's not cheap. What does it cost.

Well, I haven't got the exact figures, but historically when I've looked at it, I both personally shied away from thinking, well, you know, I just hope I go quickly and the life insurance kicks in.

Well, I mean that can be arranged, Kevin, increasingly easily these days.

That is a tricky one, though, You're right, because it is again, yeah, I know what you mean. Anything I've kind of thought about, it's one of the most ones. You look at it and you think, actually, that would be a nice to have, but at the same time, it's just way too expensive for covering that particular issue. And I suppose the other thing is some some employers

Yeah. Does it also sometimes come with life insurance as sort of an optional extra if you buy life insurance, Kevin, will it come with critical illness option?

It might do. In some life covers, there will be a clause that says, if you're diagnosed with you know, an end of life an imminent end of life event, they'll pay you out so that you can organize your affairs so.

They'll pay Okay, so that's not great. Yeah, sorry, so it's not critical illness insurance.

Yeah, but it kicks in if you know, you go to the doctor and they say, I'm very sorry, you need to prepare yourself. You've got just a couple of months or whatever it is they should. Then if you've got that clause in your life policy, pay out the life policy ahead of time.

Okay? What happens? Then? What happens if you're diagnosed with a terminal cancer and told you have under a year, for example, and your insurance pays out and you pay a few mortgage all good, and then you go one of those trials and have a miracle cure.

Well, I think you where the insurance come.

That's the problem every silver I.

Know, I know, I would have thought the insurances company would just go well, good for you on you go, But maybe not, right John, Kevin? What else?

I think that the big one now is particularly payst COVID is travel insurance. Depending on how much you pay and all the rest of it, that can be.

Useful, I mean surely. I mean I would say travel assurance was compulsory. I'd never go away without it. Could anyone go away without travel insurance? And would you go to America without travel insurance? That would be insane?

Well, I suspect lots of people do, particularly in Europe.

But you can get an easy hr Is that what it's called? E hr ken Yeah, which kind of covers you from medical expenses, right, yeah.

Yeah, e heck, I think it is. Sorry, no, I think I think trouble making documents.

Absolutely trouble making all over the place. Sorry everybody, apologies, just got off a long whole flight. John, You never go anywhere with that traveling you're ind.

I feel I've always had a drummed enemy from a young age about getting repatriated off a mountain seede, even though I'm never on a mountain side. So yeah, but yeah, I can see actually who people may be a bit cavalier about it. Going to Europe, I think anywhere outside of Europe, for definite, you should have travel insurance. And it is cheap. It's not an expensive thing. Yeah, multi exactly.

Yeah, And I found out the other day. Wait the other day, by the way, when I was going broad for a few days to work and didn't have insurance. I thought I should have a separate business travel insurance. But does that not?

So?

Most revel insurance travels you for leisure and for shr business trips. Is that right, Kevin? Or was I just lucky? Now?

I think that's probably right. The other thing to look at is your if you've got a homeowner's policy, is to look at that because quite often you're insurer will extend that into.

Travel and your credit card as well, right, I mean, certainly a lot of American Express cards, assuming you pay for the trip with your American Express card, will cover you while you're away. I'm assume that's true of lots of credit cards.

Yeah, And it's definitely a perk to look out for, because if you do get stranded, they will pay for the hotel, the new flight, et cetera.

Okay, well that's that's that last one. Anything else or are we are we actually there? Now? This has been a very very expensive podcast.

Well, I think that the thing you can reassure listeners with is that that the main things like make and homeowners, the price is actually going down so.

Great.

You know, buildings only cover according to Consumer Intelligence, held two point two percent in the fourth quarter.

Why do we think that is when the cost of construction are going up so much and we hear of nothing but the cost of construction rising and rising in how impossible is to build anything because the bill cost is so high, etc. Why would the cost of ensuring be falling? Is it maybe because there are fewer fires than there used to be, Fewer buildings fall down, fewer bits full of buildings onto other people's heads. I mean, is it simply about that?

No, I think it's about insurers with lots of capital and there's plenty of competition, so the competition in the UK market remains intense for these main big ticket items, well, big premium pools like motor like homeowners.

Brilliant John, Yeah.

I mean the other thing I would say is that it's concessed. Certainly, in my experience, it's consistently been worth shopping around when you get your renewal. I mean, just this year, I'm iced to save one hundred and fifty pounds off my buildings insurance, and it wasn't it wasn't that high. In the first place. The quote came in for I think it was it was three hundred, then it came in at four hundred, and so I just went to a comparison site, put it in and I

Well, there you go. Who needs Martin lew when you've got John stappack right brilliant? Thank you both so much. That was super useful, and off you go, everyone to your admin photographs of all your jewelry after the valuers, etc. I don't know if I'm going to be doing that. Maybe I just don't have enough of value to make it worth it, as I put it on my long term list to do one day in the distant distant future. Thanks for listening to this week's Marrin Jugs your money.