8.2.5 Other general insurance
It may seem as though every time you buy a consumer item, you’re offered an extended warranty for it. This form of insurance policy is offered by retailers who earn commission from the insurers whose policies they sell.
Typically, extended warranties cost a large amount relative to the actual item, and do not pay out in all circumstances where the item becomes faulty. You need to examine this type of insurance with great caution, and perhaps consider self-insurance for items such as televisions and music centres. New electrical items and ‘white goods’, like washing machines, are generally reliable and unlikely to break down in the early years after purchase, the time period usually covered by extended warranties.
Payment Protection Insurance (PPI) is a type of insurance that, in recent years, has fallen into disrepute. In theory, it’s aimed at protecting your credit card or loan repayments. However, because PPI was offered largely at the ‘point of sale’ of taking out such cards or loans, it was subject to claims of serious ‘mis-selling’.
Consumers took out policies in the absence of any competition, often buying something they did not need or at an inflated premium. Alternatively, PPI was totally unsuitable because exclusions meant that the consumers weren’t covered anyway, perhaps because of health conditions or the nature of their employment.
In 2005 Citizens Advice made a ‘super complaint’ about PPI to the Office of Fair Trading. In 2009 the Competition Commission decided to ban PPI policies from being sold alongside cards, loans and mortgages. Then in 2010, after a flood of consumer complaints to the Financial Ombudsman, the FSA issued new rules effectively forcing firms that had mis-sold PPI to refund customers directly, rather than requiring them to go through the Ombudsman.
It has been estimated that as many as four million people might be in line for compensation for mis-sold PPI policies, with financial firms setting aside more than £20 billion for compensation payments (Guardian, 2014). Consumers who still want to take out PPI can do so independently of taking out the debt product, perhaps through shopping around on comparison websites and comparing the premiums and the details of the policies very carefully.
General insurance is an almost endless topic: if there is a risk of a peril, there is probably an insurance that could cover it, or that could be designed to cover it. Reportedly, American singers Mariah Carey and Jennifer Lopez insured themselves for up to $1 billion, and in 2006 England footballer David Beckham was reported to have insured himself for £100 million against injury, illness or disfigurement.
More prosaically, there is insurance covering the risk of rain disrupting organised outdoor events, as well as weddings insurance and insurance against the unexpectedly large costs of twins.
Pet insurance is one of the UK’s fastest growing areas of insurance, with now almost seven million pet insurance policies, or around one-third of all pets being covered by insurance (YouGov, 2010).
If you decide to take out pet insurance or any other general insurance you should consider it carefully, using the financial planning process.