Tide's turning against the tie-ins

Most home buyers and holiday makers are paying far too much for insurance because of "tie-ins".

When buying anything from a holiday to a house, worrying about insurance comes at the bottom of the list for most. However, the evidence is growing that you can save substantial sums by avoiding so-called "tie-in" deals and shopping around for your insurance instead.

When buying anything from a holiday to a house, worrying about insurance comes at the bottom of the list for most. However, the evidence is growing that you can save substantial sums by avoiding so-called "tie-in" deals and shopping around for your insurance instead.

Holidaymakers are paying up to 75 per cent more for insurance through travel agents and tour operators than if they bought it from an independent provider, according to a report published last week by Screentrade, an online independent insurance provider.

The story is the same for life insurance. Mortgage providers are charging up to 30 per cent more for house cover than if you bought separate insurance, according to research by Direct Line. Lenders also tie- in mortgage-payment protection as well as home cover, and charge more for it than if you bought independently, it found.

The tie-in problem is widespread, experts say, because many consumers either do not realise that they are being ripped off, or can't be bothered to shop around. As a result, 70 per cent of travel insurance is sold by travel agents and tour operators, and more than 60 per cent of life insurance is bought from mortgage lenders.

Even for those consumers who are prepared to shop around, companies can make it seem as though you have to take their insurance if you want to buy their product. This kind of pressure is commonly applied to people borrowing to buy their home, according the Ray Boulger, senior technical manager at John Charcol.

He said: "Lenders do not insist customers take their insurance, but they can persuade them by being economical with the truth that they have no choice. This is especially the case for people whose circumstances are not straightforward and who are only too pleased to have been offered a mortgage. They may not realise that they could have gone elsewhere."

Travel insurers also have ways to make customers feel they need to buy insurance as part of the package. The Screentrade research found that companies often refuse to confirm a booking unless customers have insurance, making it far more likely that consumers will buy insurance at the same time as booking the holiday rather than going off to find cover and then coming back to buy the holiday.

Mike Naylor, senior policy researcher for the consumer magazine Which?, stressed the need for people to do their own research. "Insurers find all sorts of ways to get around rules that say there should be no tie-ins. But people should shop around and it should be made a lot clearer that they have that option. Exactly what they are buying should also be spelt out much better." One way travel companies had got around tie-ins, Mr Naylor said, was to offer packages which include "free" insurance. "They call it 'free' but they claw it back by increasing the cost of the holiday. So a similar holiday would be less expensive from a different travel agent," he said.

As well as selling insurance at prices that are greatly inflated, often companies do not sell products that are appropriate for their customers.

Gill Murphy, of the independent insurer Direct Line, said: "We have found that companies are not asking the right questions. So, for example, they might not ask if you have a medical condition when selling travel insurance for an adventure holiday. This could end up costing a lot in additional fees if you then have to pay medical bills when on holiday."

An even more serious example of this one-size-fits-all approach is when customers take out mortgage-payment protection from their lender but do not realise that the policy does not cover them. Self-employed people are frequently caught in this trap as mortgage-repayment insurance often does not cover people who work for themselves. Another pitfall is that the insurance can sometimes only cover sickness and accidents and not loss of job.

Mr Naylor another area where consumers can lose out is when buying extended warranties. These insurance policies are mostly sold with the goods in question and usually for items like electrical goods. Mr Naylor said: "The warranties are very often expensive and cover products that are unlikely to break down. Our research showed that even in the worst cases, two-thirds of washing machines don't fail within the first five years."

Most industry experts agree that the practice of tying-in insurance has decreased. But a worrying development at the end of last year was that the Government abandoned plans to ban home-insurance tie-ins. Ms Murphy said: "This has meant that some smaller lenders are still tying-in their insurance, affecting about half a million people. The worry is also that, because the practice has not been banned, the bigger lenders may re-introduce it."

A relatively large number of mortgage lenders also require you to take out insurance to cover the repayments on your home. Your can also buy insurance to cover other loan repayments. Companies entice customers into this practice by offering cheaper interest payments on the loan.

But, Mr Naylor warned, you rarely get a good deal: "Payment protection can cost people a hell of a lot - you could end up paying an extra £2,000 on a £10,000 loan in insurance alone. We're not very keen on this type of insurance." This is not to say that you should not take out insurance for aspects of life as important as your home or your health on holiday. But, independent experts say, it is wise to check the conditions of your policy very carefully to find out if your cover is appropriate. Also, find out what else is on the market to see whether a significantly better deal is out there, as buying a cheaper policy does not necessarily mean buying a worse one.