You can afford to replace a phone and still need insurance for a cheap holiday. Replacing the phone has a fairly predictable cost; an overseas medical emergency can cost far more than the trip. Insurance is most useful when a possible bill would exceed the cash you have available.
The average overseas medical claim paid by Association of British Insurers members was £1,528 in 2024. One claim, for emergency treatment in the US and getting the patient home, exceeded £1 million. Saving enough to meet the average claim would offer little protection against that bill. ABI claims figures
For a broken phone, the relevant cost is a suitable replacement, which may be much less than the original price or the latest model. Whether you can find that money immediately also matters: a phone needed for work cannot necessarily wait until you have saved up.
Where the premiums go
In the FCA’s 2025 market data, gadget-insurance claims costs were equivalent to 36p for every £1 of premiums. The corresponding figures were 48p for combined buildings-and-contents insurance and 59p for motor insurance. The remainder is not all profit: running and selling insurance also costs money, and premiums and claims are recorded at different times.
A low ratio of claims to premiums does not make cover for a large loss worthless: most people could not rebuild a home from savings. For smaller losses that you could pay yourself, repeatedly paying the insurer’s costs as well as funding claims is harder to justify. These ratios compare the cost of claims with premiums, not the number of claims accepted or rejected. FCA data and definitions
If replacing a phone or appliance would leave the rent and other essentials untouched, keeping the premiums in an accessible savings account gives you a fund for whichever item needs attention. That fund needs enough money to cover a loss from the start. Cancelling a policy and starting with an empty account leaves you exposed to a loss tomorrow.
The same £300 bill can be manageable for one household and disastrous for another. Cover can still be useful for an essential item if you could not afford a replacement. Check the excess and replacement arrangements: a policy that reimburses you later may not solve the problem of finding the money now.
How much of a claim can you pay yourself?
An excess lets you insure against a large loss while paying the first part yourself. Compare quotes from the same insurer, with the same cover, at several excess levels. The cheaper premium needs to compensate for the additional amount you would have to find after a claim.
For example, accepting another £200 of excess to save £40 a year would take five claim-free years to save the extra £200. A claim within that period could use up more than you had saved; several claims could leave you paying the extra excess several times. The same calculation works with the actual difference between your quotes.
The voluntary amount may sit on top of a compulsory excess. Check the total for the loss you are worried about; water damage and subsidence can have different excesses from theft. Keep enough accessible cash to meet that total.
What does the policy actually cover?
Travel policies differ in the destinations and activities they cover and the medical conditions you must declare. Cover for emergency treatment and transport home may be needed even for an inexpensive trip. The Global Health Insurance Card (GHIC) does not cover transport home. Cancellation cover needs to match the money you could not recover from the travel provider.
A fire or flood can destroy many possessions at once. Being able to replace each item separately does not mean you could replace them all at once. Buildings cover concerns rebuilding costs; the market value of the house is a different figure.
Insuring only part of the total value can reduce the payout even on a smaller claim: some contracts cut it in proportion to the underinsurance. The Financial Ombudsman’s example is a £400,000 rebuild cost insured for £200,000: an applicable “average clause” could halve the claim. Insurers must also ask clear questions and apply the terms fairly; the Ombudsman can consider a disputed reduction. Ombudsman guidance
For income protection, check what your employer would pay and when it would stop. A policy with a six-month waiting period leaves you to fund those six months. The definition of inability to work, the benefit amount and how long payments last are as important as the premium. MoneyHelper explains the different terms.
Existing contents cover, workplace benefits or a packaged bank account may already provide some of this protection. Motor insurance is legally required, and a mortgage may require buildings cover. A second policy covering the same replacement cost rarely doubles what you can recover.
Sources and calculations
The excess comparison is an illustration, not a quote: £200÷£40 = five years. Extra excess is payable only to the extent that a claim exceeds the lower excess; it cannot cost more than the claim itself.
ABI figures concern claims paid by its members in 2024, not all travellers or the probability of needing treatment. The £1 million claim illustrates the possible scale of a bill; it does not establish how often such bills occur.
The FCA figures are aggregate claims costs divided by written premiums in 2025. They include reporting and timing effects and cannot price an individual policy.
MoneyHelper: contents cover and excesses; GOV.UK: motor-insurance requirement; MoneyHelper: buildings insurance. A rebuild estimate is not a house valuation; the Ombudsman guidance explains how the questions asked and the policy wording affect underinsurance disputes.
Checked 14 October 2026.