It pays to shop around for the best deals

Why pay a fortune for holiday insurance, when are better prices available?

You may have packed your sun lotion, flip-flops and shades, but what about your travel insurance? Although the least glamorous of all pre-holiday purchases, insurance could be the most important thing you take if something goes wrong. Yet one in five holidaymakers fail to take out any insurance at all, according to a recent survey carried out by insurers Churchill.

You may have packed your sun lotion, flip-flops and shades, but what about your travel insurance? Although the least glamorous of all pre-holiday purchases, insurance could be the most important thing you take if something goes wrong. Yet one in five holidaymakers fail to take out any insurance at all, according to a recent survey carried out by insurers Churchill.

Policies are sold by banks, building societies, post offices, travel agents and a growing range of specialist, low-price travel insurers. Shop around and you can slash the cost of cover, giving you extra money to fritter on sangria, silly hats and tacky souvenirs.

The most expensive way of buying cover is, unfortunately, the easiest - allowing your travel agent to add its own cover to your holiday. Churchill says 60 per cent of holidaymakers still take this costly option.You are under no obligation to take this cover, although around one in 10 holidaymakers believe it is a legal necessity, according to independent travel insurer Primary Direct.

"Even where customers know their rights, they still give in to pressure at point of sale and take out very costly insurance, typically paying 60 per cent more," says director Tim Berry.

Holiday companies make huge profits on the insurance they sell. Far better deals can easily be found from specialist insurers. Primary Direct charges a single person £12.80 for 10 days in Europe, but Thomson Holidays charges £42 - and £45 for somebody age 65 or over.

The margin for families and groups is even greater. Two adults travelling with two children in their early teens would pay £30 for 10 days' European cover with Primary Direct, but £147 with Thomson.

For worldwide cover the difference over 10 days is even greater - £66.66 against £234.50 respectively. Thomas Cook is similarly expensive at £229.

Choosing a competitive independent travel insurer is not the only way to save money. If you expect to take more than one overseas trip in the coming months consider buying an annual multi-trip policy. This will cover you for any number of trips in a 12-month period and is cheaper and more convenient than arranging a one-off policy each time you travel.

A single person can get annual European cover for £49 with Columbus Direct and worldwide cover for £72, but it is families who make the most impressive savings. Columbus charges £79 for annual family European cover and £89 for worldwide cover.

This covers two adults and up to three children aged below 18 (or 21 if in full-time education). It is available to unmarried couples, same-sex couples or single parents with children.

Insurers' definition of what constitutes a family differs - some take it to mean two adults and two children under 18, while others are more flexible. Churchill covers two adults plus four dependent children under 18, while Primary Direct covers any number of dependent children under 18, or up to 23 if in full-time education and living at home.

Most annual policies allow you unlimited trips overseas, but they will set a maximum time limit on any single trip, usually 31 days but sometimes longer. Thomas Cook has a maximum 60-day limit per journey on its multi-trip Premier Care policy, and allows any number of journeys within the year. Its policy also includes 17 days' winter sports cover.

Skiers and snowboarders beware - some policies don't include winter sports as standard, and you will have to pay extra.

Those travelling for several months at a stretch or longer should take out special backpacker cover from an independent insurer. Check you are not buying double cover with your travel insurance policy. If you have an All-Risks household contents policy your personal possessions may already be covered for overseas travel.

If this is the case, many travel insurers will reduce your premiums by around 15 per cent if you exclude baggage cover from your policy. Bradford & Bingley offers a saving of 20 per cent. A further advantage is that household contents policies will cover more expensive possessions such as jewellery or camera equipment. Most travel insurance policies will only refund items worth less than £300.

You can also cut premiums by taking out a policy with lower cover limits and fewer bells and whistles - such as Columbus Standard. Its Super policy offers higher levels of cover at greater cost.

The most important thing you take on holiday is your health. All travel policies should provide medical expenses cover of at least £1 million, particularly if you are travelling to the US where costs are high.

But don't be swayed by those offering £10 million or even unlimited cover - this looks generous but there is no way any insurance company would spend this amount on you. You would be shuttled home to the UK and free NHS care long before you put a dent in this.

You can get some free health treatment in Europe under EU reciprocal arrangements by completing form E111, available from Post Offices. Nevertheless you should still consider buying your own cover. Insurers often ask you to declare any pre-existing medical problems, which may be excluded from cover. Don't be tempted to cheat - false information or non-disclosure could invalidate any claim. Ask if you can buy cover for an extra premium.

If you expect to indulge in any dangerous activities such as scaling mountain peaks or jumping out of aeroplanes, make sure you are covered. As a general rule, any hazardous activity done on the spur the moment should be covered under a general policy, but may be excluded if it is the express purpose of your holiday. Speak to your insurer.

Your credit card issuer may claim to offer "free" travel insurance if you buy the holiday using your plastic, but this is only limited cover and no substitute for a proper, comprehensive policy.

If you need to make a claim, act fast. Inform the local police within 24 hours of any theft or other crime, or your claim could be rejected. You should also contact the insurer first if you or one of your party needs to be flown home early. They will probably want to make the arrangements - and may not pay if you have already done so.

Claims may be rejected for a number of reasons. These include holiday cancellation following failure to obtain the required passport or visa, failure of your own vehicle, or the death of a pet or animal. Finally, insurance companies are born party poopers and will refuse claims caused by alcohol and drug abuse, which might limit your options for holiday fun.