What is insurance?
Insurance is a means to protect yourself from financial loss. It is a legal agreement between the insurer and the individual that provides financial recourse should something happen to the insured entity, or should you be held liable as a result of damage or injury to a third party. You pay the insurance company a small amount on a regular basis – known as your premiums – for this kind of financial protection, with any agreed claims paid by the insurer. The insurer uses its pooled funds to pay for agreed insurance claims.
What are the main concepts of insurance?
There are several principles that the concept of insurance is based on. These are:
- The principle of utmost good faith (the insured party must willingly and accurately disclose all necessary information to the insurer, and they must act on that information in good faith).
- The principle of insurable interest (you must have some form of financial interest in the entity you’re insuring).
- The principle of indemnity (whereby the insurance will only restore you to the same financial position you were in before the loss; you can’t make a profit from it).
- The principle of loss minimisation (the insured individual should take all reasonable precautions to prevent or minimise any losses).
- The principle of contribution (the insurer only has to pay amounts equal to their own contribution).
- The principle of subrogation, or transfer of rights (once the insurer pays for any losses on damaged property, ownership of that property passes to the insurer).
- The principle of causa proxima, or nearest cause (if several causes are to blame for the loss, the nearest or closest cause shall be used to determine the insurers’ liability).
Why is insurance needed?
You are required by law to have car insurance before you can drive the vehicle on the road. If you run a business, employers’ liability insurance is similarly essential. Home insurance, particularly buildings cover, isn’t a must-have in terms of the law, but you’ll usually be required to have some form of cover by your mortgage lender.
Other forms of insurance are not necessarily legally required, but are instead heavily recommended, for example private medical insurance, travel insurance and pet insurance.
Insurance can give you peace of mind that you needn’t lose out financially should something unfortunate happen, and should you eventually need to make a claim, it can make all the difference to your bank balance.
What are the types of insurance?
There are several types of insurance available, with options to protect yourself, your belongings and your liabilities. Car and home buildings insurance are arguably the most common types, with cover in place to protect your two biggest financial assets.
There are many more types of insurance besides, however. Home contents insurance will provide a payout should any of your covered belongings be lost, damaged or stolen, while travel insurance offers protection against anything unforeseen happening on your trip, such as luggage going missing or flights being cancelled.
Home emergency cover is usually an additional cover to a standard home insurance policy. In the case of an ‘emergency event’ your insurance will cover you for fast repairs and replacement. Emergencies are usually events that make your property uninhabitable or unsafe, for example a boiler breakdown or a flood. However, cover can vary depending on your insurance provider and policy.
Then there’s pet insurance that provides cover for your pet’s veterinary treatment, critical illness cover that pays out if you’re diagnosed with an insured condition, and income protection insurance will pay you an income should you be unable to work. Life insurance, meanwhile, pays out on your death, an inevitability that can be insured against to give your loved ones financial help at a time they’ll likely need it most.
What kind of insurance do I need?
This will depend on your individual circumstances and the property that you own and need cover for. Anyone who owns a car will need car insurance, and if you own a home, you should look into home buildings and contents cover as well (if you only rent your property, you’ll only need contents cover). If you have any pets it could be worth looking into pet insurance – any pet owner knows how expensive vets bills can be otherwise – and travel insurance is always recommended for anyone taking a trip away from home, whether locally or further afield.
You may want to look into insuring yourself, too, though whether or not you do will more likely depend on your finances and family circumstances. If you’ve got a family and are the main breadwinner then life insurance would always be recommended, and similarly, things like income protection and critical illness cover could be worth looking into in order to ensure your family’s finances aren’t compromised should you be unable to work for any reason. At the very least, you’ll want to have enough cover to meet any mortgage repayments (or to repay the full loan amount in the case of life insurance), thereby ensuring your family needn’t lose their home should the worst happen.
Why are my insurance quotes so high?
There’s no easy answer to this, as an insurance quote will always be made on an individual basis, with your own unique risk factors going into the calculation. That said, there are several things that influence the cost of an insurance quote, including:
- Your age, particularly in the case of car and life insurance.
- Where you live.
- Your occupation.
- Your health and lifestyle, if you’re seeking personal insurance.
- Any medical conditions (as above).
Of course, these factors can vary according to the type of insurance you’re looking for, with car insurance having vastly different criteria to life insurance, for example, while pet and travel insurance will have different criteria again.
It’s important to remember that your quote will also be determined by the amount of cover that you’re looking for, with a fully comprehensive policy bound to cost a lot more than cover that’s more on the lighter end of the scale.
How can I get cheaper insurance?
You could reduce the cost of your insurance policy by opting for a higher excess. This means that you will have to pay a greater amount yourself of any claim before your insurer pays the rest. Similarly, you may want to look at the level of cover you’re getting and whether you’d be willing to reduce it in return for cheaper premiums. However, in both cases make sure to strike the right balance – you don’t want to have such a low level of cover that you’d be financially compromised should the worst happen and your payout wouldn’t cover your loss, so always be realistic. Never under-insure by being untruthful in terms of the value of your belongings, as this could invalidate your claim. It is especially important that you are accurate with the amount of buildings insurance you need, also known as the rebuild costs. The Royal Institute of Chartered Surveyors (RICS) has a calculator that give you an indication. You should always consult with your insurance broker or insurance adviser to make sure you have sufficient cover.
One of the best ways to ensure you’re getting the right level of cover and for the cheapest price is to compare the options. Different insurance companies will always be able to offer different prices, so don’t go for the first quote you come across and instead make sure to check what’s on offer elsewhere to see if you can reduce your premiums.
Can you negotiate insurance rates?
Yes. This can be particularly successful if you’ve found a cheaper insurance quote elsewhere – take the quote to your current or potential insurer and see if they can better it. In a lot of cases, they will.
How do I choose an insurance company?
There are a lot of things to consider when choosing an insurance company, and you need to look at more than price alone. Things like their claims payment history is incredibly important, together with their customer service rating, and you of course want to make sure they can offer the level of cover you need. Our insurance star ratings pages can help you narrow down the options.
What are the best insurance companies?
This will likely depend on your own individual requirements, as what constitutes the best insurance company for one person may not have the features necessary for someone else. Again, this is where research and comparing the options can come in, and our star ratings – which highlight the top-rated insurance companies across a range of categories – can be a great place to start.
