How to reduce the cost of insurance you pay

It's always smart to have house insurance in case something goes wrong, and of course we have to have car insurance by law. And of course there is health insurance. The bills add up!

One way to cut the costs is to choose insurance with an excess where you pay the first £1000 or whatever, and the insurer pays the rest of the claim.

The first thing to say is that if you decide to reduce the premium this way you must open an easy access savings account with the excess in it. This is so that if a claim arises, you can afford to pay your part of the claim.

Next, get a quote with the excess, and another quote without it. Note the difference you are saving. Pay this difference into your savings account each month. In other words, your outgoings will be the same as if you had taken out the full insurance, but you are keeping some of the money instead of sending it to the insurer.

When you come to renew your insurance next year, check your savings account. The balance should have increased - this will be your new excess. Repeat the process - your new insurance premium will have dropped, but you are putting the difference into your savings account.

Of course if you have to claim, you will need to draw down those savings - but console yourself that this is money you would have sent to the insurer as premiums in the first place. If you end up not making claims, then as you continue, the amount you are saving will continue to increase.

Help this process along by doing everything you can to prevent a claim. If you are applying this technique to house insurance, make sure you have proper locks on your doors and windows, make sure you trim trees near your property (to prevent them falling in gales), maintain the roof and take every precaution. If you are applying this technique to your health insurance, now is the time to start doing mild exercise and improve your diet. When we pay insurance we sometimes get careless because we feel we are "covered" - this technique gives you an incentive to be careful and take sensible precautions.

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