Don't scrimp on insurance: you risk getting burnt

While many insurers were criticised for a lack of consistency in their response to the crisis, experts say those on cheap policies are most likely to have lost out as insurers reject claims from stranded passengers.

Comparison sites have helped drive sales of insurance in recent years and made it easier to find the cheapest policies, but they also encourage choosing insurance solely on cost.

Antony Martin, managing director of online provider insurefor.com, claimed the ash crisis underlined the extent to which people buying insurance based purely on price could lose out when they made a claim.

"One of the reasons that these premiums are so low is that most policies are written for specified risks only and are not designed to cover 'all risks' – thus leaving people open to the types of problems we have seen posed by the ash cloud," said Martin.

This issue is not limited to travel insurance. So what should you focus on when looking for cost-effective but comprehensive cover? Whether it's motor, travel, home or life insurance, here are the factors to consider when shopping for insurance.

&149 TRAVEL

Bob Atkinson, travel expert at moneysupermarket.com said demand for travel insurance soared in the wake of the ash crisis as the potential implications for travellers of not being covered were made clear.

"Recent experiences highlight the importance of choosing the right policy for your needs and although we have seen a 27 per cent increase in visitors looking for travel insurance through our site, we have seen a significant shift in the number of Brits looking for 'premium' policies too – policies that offer more comprehensive levels of cover, and insure for trip delay, and scheduled airline failure and end supplier failure for example; it's certainly not just about price anymore for travellers," said Atkinson.

Atkinson set out a range of minimum requirements when buying travel insurance. These include cover of at least 2 million for medical expenses and 1m for personal liability; 3,000 for cancellation (or enough to cover the cost of the holiday); 1,500 for baggage and 250 for cash. Atkinson also advised ensuring you're covered for scheduled airline failure and end supplier failure and getting delay cover of, for instance, 20 an hour for the first 12 hours. It's also worth finding out which insurers have the best track record of helping their policyholders when unexpected disruption occurs and double checking policy wordings for potential loopholes.

MOTOR

Motor insurance lends itself well to comparison sites, but as always there are factors to consider other than price.

Perhaps the most important detail to look at is the level of excess, which is often higher on policies with the lowest premiums.

Ian Crowder, spokesman for AA Insurance, said: "Cheaper policies may not include windscreen cover, often have high excesses built into the policy and may not include legal expenses or cover for driving other cars. Look at the policy details closely and compare it with what you already have."

If you are likely to drive in Europe check that is covered by the policy, or that it can be added for a small additional premium. Currently EU rules covers drivers for third party, fire and theft but no more than that.

HOME

The cost of home insurance is set to rise over the coming years as the floods that hit parts of Scotland late last year become more commonplace.

One in six UK homes is at risk of flooding, according to the Association of British Insurers, which estimates that a 4 per cent rise in global temperatures over the next 50 years would cause the annual insured flood bill in Scotland to rise 20 per cent.

Consequently homeowners in flood risk areas have been advised to ensure they have the right kind of home insurance.

For instance, getting both buildings and contents cover is particularly important for at-risk properties because the former does not cover contents while the latter does not cover the structure of the property, or fixtures and fittings.

If you're looking for contents insurance it's worth calculating the value of your contents to ensure a policy offers sufficient cover.

The extent of the cover offered by buildings insurance can vary, with not all policies including accidental damage.

Buildings and contents insurance is usually cheaper when bought as a combined policy. If you already have one, some insurers will give offer a discount if you buy the other from them.

LIFE AND PROTECTION

This is one area where the cheapest policy is rarely the best. It's worth shopping around and while price is an indicator of value there are other issues to consider, said protection expert Kevin Carr, of Kevin Carr Consulting.

"That doesn't mean to say that dearer policies are always better, it's about understanding what you are covered for, what you are not covered for and getting value for money," said Carr.

"Important decisions need to be made that can have a big outcome in the future. Couples should usually buy one policy each and avoid joint life policies, and policies should almost always be written in trust."

Writing insurance policies in trust ensures policy proceeds are paid out direct to your dependants, saving both time and avoiding potential inheritance tax liabilities. Most insurers allow customers to do this for no extra charge.

The complexity of life and protection insurance means comparison websites are often basic and protection policies such as critical illness or income protection are best bought with advice.

"While the cheapest critical illness plans may look attractive, consumers need to look at the number of conditions covered as well as the definitions used to determine a claim," said Carr.

"These definitions change every few years and typically the older definitions are better, which often makes switching to save money a false economy."