Do we really need to buy insurance? Famously, Danny Baker doesn’t think so. We weigh the possibilities
We all need insurance. Or are we? Is it really worth paying thousands of pounds to cover yourself for countless troubles when you can never make a claim?
Outspoken broadcaster Danny Baker doesn’t sit on the fence. Believes that insurance is a waste of time and money. Even worse, it encourages people to live in a state of constant anxiety. Becker prefers to live in the moment, enjoy the money in his pocket and leave the rest to fate.
But the 54-year-old father of three faced a crisis last year when he was diagnosed with life-threatening head and neck cancer.
Relax: Outspoken radio host Danny Baker doesn’t sit on the fence. Believes that insurance is a waste of time and money. Even worse, it encourages people to live in a state of constant anxiety
Baker borrowed £30,000 from fellow BBC radio presenter Chris Evans to beat him.
After returning to work last April – and given all the clarity by doctors in June – Baker managed to pay off debts by taking an extra payment on his home in Deptford, south-east London.
Insurers have seized on Baker’s story to promote the need for critical illness insurance, the controversial cover that is supposed to pay when policyholders are diagnosed with serious conditions, such as cancer.
Baker was alarmed, and said on Radio 4’s Desert Island Discs in August: “Some insurance companies have claimed there’s a lesson for all of us.”
He suggested that insurance companies were promoting their own interests and “disavowing his philosophy” of “enjoying the money and living for the moment”.
He said he would not encourage anyone to “waste their money on insurance”.
The insurance industry, with its fondness for advertisements depicting terrible diseases and disasters, is relentlessly seeking new sales. The more policies insurance companies sell (and the fewer claims they pay), the more they earn.
But would it really be reasonable to take Baker’s line and avoid the cap altogether? The Financial Mail is examining the possibilities and looking at how likely a disaster is.
Critical illness coverage
According to the Institute and College of Actuaries, the odds of a 35-year-old man becoming seriously ill before the age of 65 are one in seven while for a woman it is one in eight.
Critical illness coverage is sold separately from life insurance and is designed to pay a lump sum when a life-threatening illness, such as cancer, a heart attack, or multiple sclerosis, is diagnosed.
The cover has been marred by several cases where claims have been denied, although insurance companies have improved somewhat. At present, one in ten claims are denied. Only 15 percent of adults enjoy this cap, with cost being one reason for the low demand.
A 34-year-old non-smoker would pay £9.39 a month for £50,000 cover for 20 years with Scottish Provident.
At 44 it would be £19.63 a month for the same cap, while at 54 it would be £51.52 a month. These prices are for coverage that tapers off over 20 years because they are usually sold along with the mortgage.
Jennifer Gilchrist of Scottish Provident says: ‘Although it’s only a small minority that claims, people need to think about how they will survive the onset of the disease – who will pay the mortgage? It gives peace of mind.
Scottish Provident paid an average of £82,000 last year to 1,100 claimants with an average age of 47. But it did not disclose how many clients did not claim.
Income protection insurance
There is a 1 in 16 chance of being out of work for six months or more due to illness or disability, according to the Office for National Statistics.
Income is protected by only one person in ten. Unlike critical illness coverage, it pays a monthly income until you get back on your feet.
Premiums vary widely, depending on age, health profile, and provider, while payment also depends on the type of job and when the benefits start.
The disability benefit has been canceled for new claimants. Under Replacement, Placement and Support Allowance, claimants can receive up to £100 per week depending on their circumstances.
The cost for Special Income Protection of £1,500 per month for 30 years for a 35-year-old non-smoking male office worker is £24.73 per month with Legal & General.
For a 35-year-old woman, the price is much higher at £41.40. Payments begin after three months.
The chance of ending your life in a car accident is one in 200, but the chance of being in a car accident in your life is one in four.
Third party, fire and theft cover costs an average of £971.40 a year – the cheapest option is just a third party, which is a minimum legal requirement*.
In the year ending at the end of last September, there were 204,350 car accidents in which vehicles were damaged and people injured. Of these, 1900 ended in death.
The AA’s Ian Crowder says: ‘The odds are against you being involved in an accident, as Britain’s roads are among the safest in the world. The most dangerous place for fatal injuries is rural areas, winding paths.
Collisions are most likely in urban areas.
Frozen: Penny Langton and her daughter Amy’s lost skateboarding claims are denied
There is a one in ten chance that you will be burgled, suffer accidental damage, or have other grounds for a claim.
There are two types of home policies – premises and contents. Although they can be taken out separately, they are often taken out together.
The average premises policy is £171 per annum while the contents is £140, according to the Home Office. However, prices vary widely depending on the property, what you own, and where you live.
Homebuyers usually must have buildings insurance to obtain a mortgage. About 76 percent of households have contents insurance and 64 percent have buildings insurance.
The rest of the families appear to be “self-insured” – choosing to risk the loss on themselves.
According to the Confederation of British Insurers, 19.7 million households have contents insurance and 16.6 million have buildings insurance. Across both types of coverage, 2.1 million claims were filed last year. The average claim was £1,500.
Translator Penny Langton, 42, from Clapham, south London, thought her insurance would pay when she lost her £150 ski boots during a trip to the French Alps.
However, she would not pay for her home coverage with Endsleigh nor travel insurance with NatWest, as both companies claimed she had failed to obtain the necessary police report within 24 hours.
Penny, who is married with two children, Dan, 11, and Amy, 8, says: ‘I was told to wait until the shoes came in and I didn’t want to waste the police’s time. However, I knew the insurance companies would need a police report, so I kept making the effort, but only when it was clear the shoes would never arrive.
Subsequently, Penny canceled her NatWest Gold Card, which cost her £5 a month and which included travel insurance.
Everyone dies, but that doesn’t mean everyone claims or needs life insurance.
Term insurance, which is paid if the policyholder dies within a specified period, is the most popular and common form of life coverage.
This is the type that is most likely sold along with the mortgage. About 1 in 20 policy terms results in a claim.
In the other 19 out of 20 cases, policyholders live longer than term and receive nothing. Average payments are £130,000 in annual installments of £919, according to ABI.
Case study: I don’t want to overpay for the car
Non-starter: Jane Warner, along with her son Robbie, was quoted £400 for fully comprehensive insurance for a car worth just £200
Jane Warner avoids paying insurance wherever she can because of the costs and she got minimal coverage for her car.
Instead of paying for fully comprehensive insurance, 37-year-old Jen only took on the legal requirements of a third party* for her ten-year-old Nissan Micra.
She and her partner, Lee Hatcher, 44, a coach driver, share their rented three-bedroom home with their son Robbie, 10.
‘I didn’t see the need for quite comprehensive cover,’ says Jane, from Shoreham-by-Sea, West Sussex, ‘although the car is reliable and great for school runs and shopping trips, it’s only worth about £200. I’ve been priced at least £400 for comprehensive insurance, but why should I be paying more on insurance than the car is worth?
Jane found a third party deal, also adding fire and theft insurance, with AA last September for which she now pays £212.32 a year.
However, Jane does not have any building, contents, life insurance, or any form of critical illness coverage. “The cost of everything is going up, including insurance premiums,” she says.
It’s something that makes me worry once in a while, but to be honest, the cost of paying for all that peace of mind doesn’t seem worth it.
“We have other daily costs that need to be covered first.”
The Fighter: Letitia Featherstone beat ovarian cancer but now has to fight for travel insurance
Case study: I was acquitted but no one wanted to cover me for travel
Elementary school teacher Letitia Featherstone, 45, turned down an offer to take out critical illness insurance.
Six months later, in April 2010, she was diagnosed with ovarian cancer.
But after surgery and chemotherapy, the following October, Letitia was told there was “no disease left”.
“Don’t think this will ever happen to you,” she says.
As bizarre as it sounds, I felt I would have tempted fate to take out a critical illness or income protection blanket. Now I wish I had.
Letitia, who is separated with a 23-year-old daughter, turned down WellWoman’s offer of £12 monthly plan, which covers seven cancers, from the insurer Chartis. If she had gotten the deal, she would have paid a lump sum of £25,000.
“Luckily I got six months off on full pay as a teacher, but the money would have looked nice with transportation and recuperation costs,” she says.
Letitia, from Woodford Green, North East London, was shocked to discover her travel insurance with M&S Money had been canceled due to cancer.
“It felt like discrimination,” she says. Even though the doctor gave me full clearance, no travel insurance companies wanted to touch me.
Letitia eventually found cover through Insurancewith, a specialist travel insurer, but had to pay £600 for three weeks of cover in America last November.
* The article incorrectly stated that the minimum legal requirement for auto insurance is third party, fire and theft when of course it is only a third party. Sorry.
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