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Below you will find straightforward information and FAQs on health, vehicle (motor), travel, life, pet and home insurance. Insurance is an important fact in the lives of the majority of people in Britain, whether it is a standard minimum motor insurance policy or something more complex like insurance for a horse or one of a variety of life insurance policies.

What is Insurance?

Insurance provides a way to manage the risk of loss. By taking an insurance policy, you are transferring or hedging against a risk to another entity (usually an insurance company).

What type of loss you are covering depends on the type of insurance you take. You make an agreement with the insurer that if you suffer a loss (as defined within the contract), the insurer will compensate you. For example, you can take a policy to cover the risk that your home could be burgled. If you do suffer a burglary and personal belongings are stolen or damaged, the insurer will provide you with compensation.

What is an Insurance Policy?

The legally binding contract that you make with the insurer (see above) is called the insurance policy. You, as the person who buys the policy, are called the policyholder.

What is Premium?

By taking an insurance policy, you agree to pay a set amount of money, usually over a length of time. This is called the premium. Most premiums are calculated per 12 months (year).

By paying that specified amount of money to the insurer, they agree to pay for certain loss or damage – as defined within the contract. The policyholder is now covered by that insurance policy. So, if a loss or damage does occur, the policy has covered this.

What is a Claim?

A claim is what you do when you want to receive compensation when something has happened relating to your insurance cover. For instance, you might have a pet policy which covers vet fees.

Your pet suffers an injury and must go the vet – you can now make a claim to your insurance company. They will examine your claim to make sure it falls within the policy and will then give you the necessary compensation.

What is an Event?

An event is what happens that leads you to need to make a claim. This could be a flood which causes damage to your home – if you are insured for this event, you can make a claim.

In order to be able to make a claim and receive compensation, the event will need to take place within the period of your insurance policy and happen without your intention.

How Much does it Cost?

The amount of premium you pay for your policy depends on what you want to cover and also on the insurance company. You might have to pay additional costs such as stamp duty or other tax (such as income tax) on your insurance – make sure you find out what, if any – apply to your policy.

There might be other costs, such as admin fees, from your insurance company. Take some time to find out what (if any) these are.

The more likely a risk is to become an eventuality, the higher the premium on your insurance. For example, young drivers pay higher premiums on car insurance because they are officially more likely to be involved in a car accident. Over 50s pay less because they are the group that has the least accidents.

What is Excess?

If you need to make claims which are above the cover you have in your insurance policy, you can pay for them using excess insurance. You will need to purchase excess in advance and is an extra to primary insurance. Excess is generally deducted from the amount of cover you have on your policy.

For instance, if you need to make a claim because your pet needs to go the vet and it costs £300 then your excess could reduce the liability of your insurance company. So, if your excess is set at £100 then a successful claim gives you £200 and the rest will need to be covered by yourself.

What are the Advantages of Insurance?

Taking an insurance policy means taking precautions. The larger the size and importance of a risk the more sensible it is to transfer risk. For instance, if you have a pet then it is more than likely it will need to visit a vet frequently throughout its lifetime.

Therefore you can take a policy to cover the costs of this. Similarly the price and sentimental value of personal belongings means that the majority of people in the UK have some form of home insurance.

Large businesses and corporations rely heavily on insurance to cover themselves for damages that could lead to loss of business. Whether this a large oil refinery that needs to insure against the dangers of a broken down drill or even war and terrorism that would prevent oil from being produced, or whether this is a small café that insures its coffee machines – without them there would be no coffee to sell.

By transferring or spreading a risk, you reduce the danger of having to fork out large amounts of money in case of an 'event' taking place which would require you to make a claim.

Are there Disadvantages to Insurance?

Insurance has many benefits but there are some people who wonder whether they are paying for something that they might never actually need to call upon.

For example, a person might think there is no point in insuring their home because they are sure they will never be burgled. Unfortunately, unexpected events do happen – it may not be something as severe as death or a major accident, but it could be major damage from weather.

One aspect to bear in mind with insurance: always make sure that the policy you buy covers you in the way in which you want. If you are inadequately covered but are unaware, you could be faced with an awkward and potentially expensive situation if you need to make a claim.

In the past few years, much has been made of the mis-selling of Payment Protection Insurance, sold alongside loans and credit cards by banks and lenders. Many customers felt that the PPI policy was 'forced' upon them before they fully understood what they were buying. In some cases, customers who need to make a claim found that the policy did not cover them. Make sure you fully understand every aspect of a policy and always ask questions if you are unsure.


Please Note: is not authorised to give advice under the Financial Services and Markets Act 2000.

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