Product price may be right, but is it your best option?

Published on Friday 8 August 2008 22:11

EVERYONE loves a bargain at the best of times, let alone when household budgets are stretched to their limits. We are surrounded by special deals everyday and it is difficult not to be attracted to "buy one, get one free" supermarket promotions or "double discount" offers on household goods.

However, most of us also like to pay a little extra for some added value every now and again. A free-range chicken costs a pound or so more, but it is worth it. I think in general most people think along the same lines. This is evident in all aspects of our day-to-day lives.

For instance, when people travel, some will opt for the no-frills, low-cost carriers, while others will favour a full-service airline to ensure that they get to choose their seat and have an in-flight meal. Even those retailers who market themselves as low cost will also carry the value-added lines as well, as it gives customers choice and options to fit most budgets and tastes.

So why is it that with certain types of insurance the companies selling them insist that there is absolutely no factor to consider other than price? The advertising claims that it is a no-brainer: buy the cheapest because there is no other aspect to differentiate them. The premise is that there are no life insurance equivalents of free range or in-flight meals – it's all economy, economy, economy. What's more, it implies that you wouldn't need a financial adviser to tell you this either – why get advice to tell you that cheapest is best?

Protection insurance – such as critical illness and income protection – does offers free range and in-flight meal equivalents. A few extra pence each month could buy a bereavement counselling service on a life insurance plan or a back-to-work help service on an income protection product over and above the basic cover.

While the cash pay-out from a protection policy is the main reason that most people buy protection, it is not just money that solves problems when things go wrong. A little bit of advice can make a massive difference as well.

A couple buying life assurance from a supermarket will typically buy a joint life policy, which will pay out only once. However, the cost of two single life policies is often only a few pence more expensive, but there could potentially be two payouts – ie double the cover for much the same price.

Ironically that is as near to buy one, get one free as it is possible to get, but you won't get it from a supermarket because they are concerned more with price than advice.

The big problem with the focus on price is the implication that no other factor is important. Speaking with a financial adviser could result in a purchase that offers much better value for money than the cheapest price angle implies.

In most markets value for money is what most people seek, so why should protection insurance be any different?

• Roger Edwards is product director at Bright Grey