Money Matters: A Guide to Insurance

A lot of adulting is spending your money on things that don’t necessarily give you anything in return. Insurance policies are one of those things.

With so many various kinds out there, what is it you really need to be spending your money on and why? It can be easy to think ‘I don’t really need it’, ‘it won’t happen to me’ or even ‘I can get along without it’ but some insurance policies really are worth having.

Like all money matters, insurance is another one of those things that doesn’t really get talked about. So, we’ve put together a guide to the different types of insurance policies available and when you may/need to get yourself some form of cover.

Car Insurance

If you use your car on the roads, you must have car insurance. If you don’t, you face a fixed fine, having your car impounded or destroyed and/or face prosecution. It’s a legal requirement and simply isn’t worth the risk, particularly if you end up in an accident.

There are various policies available, the most common being: third party, third party fire and theft and fully comprehensive.

Third party

This is the most basic form of car insurance available and all it covers you for is damage to another’s property if you’re in an accident, and any sustained injuries they incur as a result of that accident. This also applies to any passengers travelling with you.

It will not cover any damage to your vehicle. If you have a low value car, this isn’t necessarily a problem. In the event of a write-off or if you’re faced with a high cost repair, it may be more cost effective to simply replace the vehicle.

Third party fire and theft

This policy offers the same as the above but with the addition of protection in the form of fire and theft. This basically mean that if your vehicle is damaged in the event of fire, the policy would cover the cost of a replacement (the ‘cost’ is the amount the insurer deems the car is worth)/repairs, if possible, and offers you the cost of a replacement if your vehicle is stolen.

Fully comprehensive

A fully comprehensive policy will offer you the most assurance. Not only are you covered in the event of third-party damage, fire and theft but your vehicle is also covered within the policy. Additionally, this policy will also cover you in the event of damage caused to your vehicle by third party as well as accidental damage.

You should consider this policy if you’d be unable to cover the cost of repair or replacement in the event of an accident. This is usually if your car is of a certain value where a replacement would set you back significantly.

Interestingly, Money Super Market recently found that a fully comprehensive cover is in fact the more cost effective policy to have because of the volume of people taking only third party insurance policies.

When it comes to car insurance, you need to be sure that the policy suits your personal circumstances. The terms and conditions of the policy will vary from supplier to supplier so be sure to read in detail what they’re offering.

Note, your premiums will be dependent on the voluntary excess you pay, any history of accidents or claims and any additions you take with the policy – for example hire car in the event of an accident. There are lots of ways that you can save money on your car insurance but still have sufficient coverage.

Home Insurance

There are generally two different types of insurance policies under home insurance: buildings insurance and contents insurance.

Buildings insurance

Buildings insurance will cover the cost of repair/re-build of your property and its fixtures and fittings in the event of fire, flood, theft, burst pipes and a number of other circumstances. However, it does not cover accidental damage necessarily and is often an addition to a policy.

If you own your own home, having buildings insurance may be a necessity to obtaining a mortgage. You may even have to prove you’ve taken insurance out for your property in order to get final approval for the loan. However, you don’t need to take out a policy from your lender. You’re free to search around for the best deal and look for a policy that is suitable for you.

Something to note: If something should happen to your property but you neglected to take out buildings insurance and this was a condition of your mortgage, they could demand the full balance of the mortgage is paid!

If you rent a property, you don’t need buildings insurance as this is a responsibility of the landlord as owner of the property.

Contents insurance

Whether you rent or own your own home it is advisable to have contents insurance. You may feel this is something you could get away with. However, in the event of a fire, could you replace all contents of your property without dipping significantly into savings or taking out loans to do so? When you consider, even the necessities; fridge/freezer, sofas, beds, clothes, oven etc., this would be costly to replace in one fell swoop. This is what your contents insurance policy covers. It also covers your TV, consoles, books, jewellery, toys etc.

Like with buildings insurance, you can also add on accidental coverage. If your TV is particularly expensive, for example, this would be covered under your accidental clause. Even when told not to, kids will play ball in the house!

Additionally, under your contents policy, you could look at personal possessions cover. This will cover certain items when taken outside of the home and often covers loss, theft and damage. Items typically covered includes phones, wallets, bags, jewellery, cameras and keys.

Note: if you have high value items, ensure you specifically cover these under your policy. They’ll only allocate a certain value to some items in the event of theft, damage or loss. Be sure that you get sufficient coverage for the items that matter most to you. This includes, jewellery, bikes and even a specific amount for cash.

Life Insurance

Typically, you’d take out a life insurance policy when you buy a house.

In the first instance, should you die, this would ensure that your estate and debt of estate was protected. If you don’t take out a life insurance policy and die, the debt you owe on the house would pass to your spouse or partner (if joint tenants). Or to your benefices. The debts may be covered by selling the property. Or through other policies you have and/or savings/investments you’ve acquired- but not always. As such, ensure your policy sufficiently covers any debt, including the total value of your mortgage, any additional expenses you want to cover and of course, if you want a little something left over.

Another instance to take out a life insurance policy is when you have children. Whether you own your home or not, a life insurance policy can ensure that you can leave your children a little something. You can even look at paying towards any costs of their upbringing. This is particularly important when you have young children.

Consider…

Within and around life insurance policies you can also look at terminal/critical illness cover which would give you a lump-sum pay out upon diagnosis of a range of conditions/a terminal diagnosis. An additional or alternative policy would be Income Protection Insurance which, should you be unable to work because of illness or injury this could cover up to 70% of your regular income until you’re able to get back to work.

A life insurance policy gives you, and your family, peace of mind that you’re financially protected should the worst happen.

Travel Insurance

ABTA recently revealed that 38% of us going on a summer holiday this year are yet to take out a travel insurance policy. Scarily, it also highlighted that 21% travelled without any insurance within the last year and 37% of those saying they didn’t think they needed it.

However, if you’re travelling outside of the UK, you really should be getting travel insurance.

If you got ill during your trip, you could be lumped with medical bills in the 10s of thousands. If you pass away, your family will not only have to take on the medical bills but there would be significant travel expenses to be paid too.

But should you need to change your plans for whatever reason, your policy would protect you here too. In some instances, this ensures you recover some/most/all of your expenses.  In fact, this is a reason to take out an insurance policy the moment you book your holiday. As its not just when you’re away that you may need it. Things can happen on the lead up to your holiday that may mean you need to claim on your insurance.

We contacted ABTA to see what they recommend when it comes to buying travel insurance. Here’s what they said:

If you fall ill or lose your job and are unable to travel, the resulting cancellation fees should be covered by your travel insurance. For this reason it is important that you purchase insurance at the time of booking as you can never predict when you might need to cancel. Check to see what financial level of cover your policy provides and what type of cover your policy offers for the following:

• Accident
• Illness
• Family bereavement
• Pregnancy (unknown when you buy the policy)
• Jury service or witness summons
• Home emergency: fire, storm or flood, burglary
• Redundancy
• Bad weather – affects the departure of flights and ships.

The vast majority of insurance providers require you to be in the UK when you buy your policy – and if you buy it when you are already overseas, it will invalidate it.

There are very few policies that you can buy if you are already away but they do exist so all is not lost if you forgot to buy it before you go but you can expect to pay more.

If you regularly travel or often travel last minute, then an annual policy is advisable so you are always covered.

It is worth remembering that most policies will cover you should you need to cancel your holiday due to ill health, redundancy or a family bereavement so it may be worth purchasing a policy when you buy your holiday.

Don’t forget…

When you take out a travel policy, ensure that you disclose all medical conditions. Double check that your destination/s and planned excursions will be covered. If you don’t have the right cover, your policy could be deemed null and void and they won’t pay when you need it most.

Pet Insurance

Our pets become are an extension of the family; they become our daughters and sons, brothers and sisters so why would you compromise on the health care they get? Sadly, there is no NHS equivalent for our pets. So, insurance is the only way to ensure that our pets get the best treatment. As and when they need it. The alternative? When faced with a bill we can’t pay, it may mean we need to put them to sleep. When, with pet insurance, they otherwise could’ve had the treatment they need and gone on to have long and happy lives. Not insuring your pet can leave you with lots of unnecessary stress and worry when faced with illness or injury. With surgery for our pets costing between £1,500- £30,000, it’s really not something to leave to chance.

We hope this has been a helpful introductory guide to the different insurance policies. Our tips are provided just for a little insight. We’re not financial experts and recommend that you seek financial advice from a financial advisor to get a better indicator on what may suitable for you based on your personal circumstances. This article is a collation of our research and personal experience.

We’ve shared some of our other money matters features below. They provide our tips on savings and ways in which you can better manage your personal accounts.