Insurance
Most of us do not like to think about bad
things happening to us, but because there is no way of knowing what
the future holds, we often take out insurance to protect ourselves
financially if something does go wrong.
This section explains more about how insurance works and
the different types available.
You can read through this information sheet, or go directly to
the sections you want to read by clicking on these links:
Insurance
How insurance works
There are lots of different types of
insurance, but they all work in basically the same way:
You pay instalments of money – known as premiums – to an
insurance company to protect yourself financially if something
happens, for example your car is stolen, your home burns down or
you get ill and can’t work
If the worst comes to the worst and whatever it is you have
insured against happens, your insurance company pays you an agreed
amount of money.
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Where to buy insurance
You can buy insurance from many different
places:
- You can use an insurance broker to help you find the right
insurance
- You can buy insurance policies directly from insurance
companies
- Banks and other places such as shops and supermarkets sell
insurance policies
- If you buy a product or service such as a holiday or a new
mobile phone, you might be offered insurance cover at the same
time.
Most companies selling insurance have to be regulated by the FSA
so it’s a good idea to check that they are
before seeking their advice. You can do this by
checking the FSA register (link opens in a new
window).
It is also important to remember that in most cases you do not
have to buy insurance, so if someone is recommending that you buy a
policy, it is up to you to decide if the policy is right for
you.
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Choosing insurance
Insurance policies tend to fall into two categories:
Protection insurance: examples include life
insurance and critical illness insurance, which pay out if you
become critically ill or die, and income protection insurance,
which helps you if you lose your job.
General insurance: this includes motor
insurance, buildings and contents insurance for your home, travel
insurance, pet insurance and health cover, which includes things
like private medical insurance.
In most cases, it is up to you to choose the types of insurance
that you think are right for you but there are a few compulsory
insurances. These include motor insurance, which you have to have
if you drive a car or motorbike and buildings insurance, which a
mortgage lender will insist you have if you take out a mortgage to
buy a home. Buildings insurance covers you if your home is
destroyed by something like a fire or flood.
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Pay attention to the details
When buying insurance it is extremely
important to read the small print that goes into detail about what
your policy covers and any rules and regulations that your
insurance provider sets out. If you do not read the detail, you
might think you are covered for something that in fact you are not
covered for. It is also really important to disclose everything
that your insurance provider has asked you to – if you do not, your
insurance provider might not pay out when you make a claim.
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Further information
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Last updated: 7 October 2011
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