Insurance


Insurance is one of those key financial products you are likely to use and need in your life. In the UK, the likelihood is that each adult will have at least one — if not several — insurance policies at any one time. Some insurance is compulsory in the UK (e.g. car insurance if you own a car), while other policies are an individual choice.

But what is insurance? Essentially it is a policy which will provide you with protection against a possible eventuality. When you take out insurance coverage with a company, you have made an arrangement whereby the company guarantees compensation for specified loss, damage, illness or death, in exchange for a regular payment from you.

The big question is: why do you need it? Or maybe more specifically: in what circumstances do you need it? Insurance is there to compensate you in the event of a loss so you are in the same (or at least similar) position financially as you were before an incident. It is there as a safeguard so that you are not negatively impacted by events such as a house fire, a burglary or a car accident.

It can feel that there are almost too many options when it comes to insurance, but don’t worry, MyWalletHero is here to guide you through what different types of insurance mean, how to choose policies that suit you and what happens if you need to make changes to your existing coverage. Whether you are after a core product such as car insurance, or looking at something more specific like wedding insurance, we have got you covered.

What different types are there?

You can pretty much find insurance for anything — Keith Richards of the Rolling Stones supposedly took a multi-million pound policy on his hands — but here we are going to cover those ‘mainstream’ products that you are most likely to need in your adult financial life.

Car Insurance

If you drive a car, then you need car insurance — it’s the law. Car insurance is there to cover your liability for bodily injury or third party property damage, and can also protect your own vehicle and self. Within car insurance itself there are different levels of coverage so let’s break it down:

  • Third party – This is the minimum level of coverage you are legally required to have. It covers other people, not you. If you were to injure someone or damage their property, they’re covered. But if your own car is damaged or stolen, you have to pay for the loss yourself.
  • Third party, fire and theft – Much the same as third party insurance, this kind of policy covers other people. The main difference is it does cover repairs or a replacement if your car is stolen or damaged by fire.
  • Comprehensive – This is the highest level of cover. On top of what is covered under third party, fire and theft, it covers you if you damage your own car, even if the accident was your fault.

Within comprehensive policies there are then different levels of coverage and service. For example, some will provide windscreen damage or the loss of theft of keys, while others won’t. However, we’ll cover this when we look at how best to compare insurance.

Home insurance

Next to car insurance, home insurance is one of the most popular insurance policies in the UK. Home insurance protects your property and belongings. Once again, there are different levels of coverage:

  • Buildings insurance – This insurance covers the cost of repairing damage to the structure of your property. Essentially, if needed your policy will compensate you for the cost of rebuilding your house from the ground up if something were to happen to it.
  • Contents insurance – This covers the cost of replacing your belongings in your home if they are damaged, destroyed or stolen.
  • Buildings and contents insurance – This is exactly what it says on the tin. It’s both buildings insurance and content insurance combined.

Travel insurance

Have you ever fallen ill while abroad? Or had something stolen? Then travel insurance would have had you covered. It protects you against any cost or losses if something should go wrong when you’re on holiday. It can cover possessions, medical treatment, holiday disruptions and legal costs.

Most of the time, travel insurance is broken down into single trip insurance (covering you for a single trip as long as you are away), an annual multi-trip policy (coverage for a full year without the need to rebuy insurance) or a backpacker policy (coverage for an extended period to multiple destinations). You will often have to specify whereabouts you are planning to travel, eg. Europe or Worldwide and whether the policy is for an individual, couple, a family or a group.

If you are planning to do any adventurous activities such as winter sports, or are looking to cover yourself for something like a cruise, then you will need a slightly different policy.

Life insurance

Life insurance is designed to minimise the financial impact that your death could have on your family. Most policies are designed to pay out a cash sum to your next of kin if you die in order to help them with things such as household bills, childcare costs and mortgage payments.

As with anything in the world of insurance, there are different levels of coverage available depending on your needs:

  • Whole of life cover – This type of policy will guarantee your dependents a payment irrespective of when you die, unlike other policies which will only pay out if you die before a specified date.
  • Term insurance – With this cover, your family is guaranteed a payment if you die within a specific time period. Within this type of cover you can choose between a level term (the amount of cover stays the same), a decreasing term (the amount you are covered for decreases over time) or an increasing term (the amount you’re covered for increases in line with inflation).
  • Joint life insurance – If you are a couple, you could take out a single policy which will pay out in the event of one of you dying.
  • Over 50s insurance – This type of policy covers anyone aged over 50. The main advantage with a policy such as this is that acceptance is guaranteed and you don’t have to answer any health questions or pass any medical tests.

Pet insurance

Pets can be like one of the family, so it’s understandable that you would want to protect them. Pet insurance gives you financial protection against vet’s fees, if your pet is lost or stolen and provides third-party liability if you have a dog. Most insurers cover dogs and cats, but you can find more specialised pet insurance for rabbits, horses, birds and exotic pets.

There are four main types of pet insurance:

  • accident only policies,
  • time limited policies (this allows you to claim for a specific condition for a set period of time),
  • maximum benefit policies (this gives you coverage of a condition up to a set limit) and
  • lifetime policies.

Health insurance

In the UK we have the National Health Service (NHS), so private health insurance is not as big here as it is in other countries around the world. However, it is still there as an option. Private health insurance can act as a supplement to what is available on the NHS and can sometimes offered as part of your employee benefits package.

If you choose to get private health insurance, then it will pay all of your medical bills if you are treated privately. You don’t need private health insurance to be treated privately, but you may find it hard to pay for private treatment without it — especially for serious conditions.

Other insurance

You can insure pretty much anything in your life. So outside the more mainstream insurance products, here are some other forms of insurance that you might come across:

  • Breakdown cover – This is a policy that will cover you if your vehicle breaks down. Most policies will provide roadside assistance if, for example, your car battery dies or you have a puncture.
  • Boiler cover – This insurance will protect you if your boiler were to break. Most home insurance policies don’t cover the boiler, so it can be worth taking out a specific boiler policy.
  • Gap insurance – Gap insurance, or Guaranteed Asset Protection, covers the difference between the amount you paid for your car, and the amount your car policy pays out. Basically, if you write off your new car, your insurance company will only pay its current value, which will be less than you paid originally. Gap insurance plugs the gap — pun intended!
  • PPI insurance – Payment Protection Insurance is typically sold alongside credit cards, loans and other financial agreements, and covers the repayments on those products if you are unable to make them because of sickness or unemployment.
  • Income protection insurance – This type of insurance will protect you if you are unable to work because you are ill or injured. It will ensure that you receive a regular income until you retire or are able to return to work.
  • Wedding insurance – This is basically event insurance. It protects you from losses that may happen due to unforeseen events which would prevent your wedding from occurring.
  • Mobile phone insurance – Mobile phones can be quite an expense these days and can easily be damaged or lost. Mobile phone insurance will cover your handset in case anything happens to it.

How do I choose the right insurance for me?

Choosing the right insurance for you depends on your personal circumstances and what type of insurance you are looking to take out. One thing to remember is to not choose an insurance policy purely on price, but to consider what it is you actually want to cover, and also, how much excess you are willing to pay.

Here are a few general things to think about when choosing an insurance policy:

Excess

Insurance policies such as car or home insurance will often have a voluntary excess. This is how much you would pay yourself in the event of a claim. The higher your voluntary excess, then typically the cheaper the policy. But make sure that you are in a position to pay the amount you have agreed to if you do make a claim.

Policy exclusions

Always check what your policy actually covers and don’t assume that something will be included as standard. The insurance policy will have a list of exclusions (perils that are not covered by the policy), so check what these are and if they work for you before you confirm the agreement.

Cost

How much you can afford to pay on insurance can be a deciding factor. There are ways to make your insurance cheaper — which we will cover in a moment — but you don’t want to put yourself in financial difficulty by taking out a policy. The whole point is that it is there to protect you financially. So make sure you compare insurance policies for cost, and also make sure you are insuring what you really need to insure.

Annual or Monthly payment

Most insurance companies will allow you to make either a one-off annual payment or set up a monthly direct debit. The first usually works out cheaper, as the monthly payments will have a small amount of interest applied to them.

Automatic renewal

One other thing to consider when choosing insurance is whether or not your policy has an automatic renewal set up. This is when your policy will roll over automatically when it comes to the end of the agreed term. It’s usually best to say ‘thanks, but no thanks’ to automatic renewal and instead review your insurance on a yearly basis. Firstly, in order to compare prices, but also to consider whether your insurance needs have changed in the past 12 months.

How do I adjust my insurance coverage once I have a policy?

Your insurance premium will be decided on the information you have provided to your insurance company. This includes what type of coverage you need, as well as your personal information and details about what you are insuring e.g. your car. So if anything were to change during the term of your policy, then your insurance company needs to know — otherwise they may not approve your claim if you need to make one.

Making changes to your policy can be relatively simple. The best way is to contact your insurance company and inform them of any changes you would like to make. The one thing to bear in mind is that your insurance premium may go up (or down) as a result, and you may be charged an administration fee for making amendments in the middle of your policy.

How to compare insurance?

It is always best to compare insurance policies before deciding on which one suits you. This is not only so that you achieve the best price, but also that you get the cover that you need. You can compare insurance at specific comparison site, or you could have an insurance broker compare policies for you — although they may charge a fee.

Here’s a simple checklist of those major things to think about when comparing insurance:

Cost – How much you are going to have to pay is one of the deciding factors when choosing a policy. Make sure it is something you can afford. There are ways to make insurance cheaper, such as using your no claims discount (discount you can earn based on how many years you haven’t made a claim for), increasing your voluntary excess, improving the security of the item you are insuring or paying your premium in a one-off annual payment.

Coverage – What will your policy actually cover? Make sure that you have the right kind of cover for what you are insuring. Too much cover and you will be overpaying, not enough and you risk having your claim not paid or the payout not covering your loss. Specifically, this means things like how much your travel insurance policy will pay towards medical bills when you are abroad, or whether your home contents insurance policy cover personal belongings which are stolen or damaged outside of the house.

Extras – Once you know the basics of what your policy will cover, then compare all those added extras that insurance companies often offer to make their policies more attractive. Things such as a courtesy car if your car needs to go in for repairs as a result of an accident or gadget cover as part of your travel insurance policy. Consider whether this is something you will use and whether or not it is worth the additional cost.


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