People are wasting millions of pounds on pointless insurance policies, a consumer group will claim today.

Which? will give warning that consumers could be unnecessarily spending thousands of pounds each for the sake of “peace of mind” on obscure policies that they do not really need.

The group said that although car, home and life insurance are must-haves, other policies are unnecessary and riddled with clauses that make it almost impossible to make a successful claim. Industry experts said that the increasing strain on household budgets means that people should offload policies that they do not need.

The Which? hit-list of the top five most unnecessary types of insurance includes identity theft insurance, mobile phone cover, extended warranties and accidental death and injury cover, as well as the controversial payment protection insurance (PPI), which is usually sold alongside a loan to protect the borrower if they cannot meet repayments.

The warning will deal a further blow to the £5 billion PPI industry after the Financial Services Authority fined HFC, an insurance division of HSBC, £1million for mis-selling the cover. PPI cover typically pays out on only 20 per cent of all claims. After a two-year investigation, the Office of Fair Trading referred the sale of PPI to the Competition Commission.

Which? says that identity theft cover, which has been heavily promoted by banks in the wake of the loss of personal details by HM Revenue & Customs, is unnecessary, because banks must pay out for ID fraud losses under the terms of the banking code.

Standard life insurance policies usually already cover accidental death, while mobile phone insurance, which can cost as much as £5 a month, is covered by most standard home contents policies. However, car insurance is a legal requirement if you own a vehicle and home insurance has become increasingly important to properties susceptible to flooding.

Claudia Dyer, editor of Which?'s Money Saving Handbook, said: “You can buy yourself insurance to cover yourself against almost any conceivable risk - even alien abduction. The insurance industry's favourite phrase is ‘peace of mind', but it uses this to justify policies that cost a lot and are almost impossible to claim against.”

Although insurance experts typically warn homeowners not to risk scrimping on insurance, the emergence of increasingly unusual policies on the market has led some to admit that not all insurance is a must.

Anyone under pressure from higher household costs, including energy price rises and higher mortgage repayments, is advised to get rid of any unnecessary policies to ease the strain on their budgets.

Richard Mason, head of insurance at moneysupermarket.com, the price comparison website, said: “Car insurance is a legal requirement, while home insurance is required to get a mortgage. After that, pet, life and private medical insurance are only good to have if you can afford it, but can go if you can't.”

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