Insurance is like a safety blanket for our finances and helps protect us from financial loss in case of accident – whether it be in the car, on holiday or at home. There are different types of insurance and some are more important than others, but each type of insurance carries its own specific purposes, and therefore, benefits to you as a consumer.
In some cases, insurance can seem pointless – for example, taking out travel insurance if you are going on holiday in the UK. But there are still merits to even this kind of policy because you simply don’t know what could happen in the future. In this article, we navigate the two main categories of insurance and why they are both important. We will also provide a quick list of tips to make sure you get a good insurance quote.
Simply put: insurance is a means to protect you from potential financial loss. Typically, your insurance policy costs a fraction of what it would cost to cover your losses. For example, if you had a car accident, your car could be written off. The insurance company would pay you the market value of your car, so that you can buy a new one – if your car was brand new, this could be tens of thousands of pounds. However, you likely would have paid only a few hundred pounds for the insurance in the first place which results in you saving thousands (in this scenario).
Insurance cannot be taken retrospectively, and if something should go wrong, you will only be protected if the financial loss incurred is directly covered by your policy. This might be why insurance companies don’t pay out if you are burgled when you’ve left a window open, for example. It is therefore critical that you check every detail in your insurance policy before you sign on the dotted line.
There are two main categories of insurance:
Compulsory insurance is insurance that you are legally required to have in certain circumstances. For example, vehicle insurance is compulsory, and you could land a hefty fine, a driving ban and points on your license if you are caught driving without insurance. But what is car insurance? Well simply put, it provides financial protection in the case of an accident which causes damage or injury to another vehicle, person, property or animal. Most other types of legally required insurance only apply to self-employed people or businesses, such as public liability insurance and building insurance.
Optional insurance is the insurance you choose to take out in order to cover certain activities or possessions. The most common types of insurance include home insurance, life insurance, pet insurance and travel insurance, although you could probably find an insurance policy to cover almost anything. While these insurances aren’t legally required, in many cases they are advised.
The definition of insurance helps to explain why it is important: insurance protects you from potential financial loss. This means, it can help you save money where you could have had to pay out hundreds or even thousands of pounds. Compulsory insurance is important because it is a legal requirement, but optional insurances also carry significant benefits. Aside from the main advantage of saving money, insurance provides a layer of financial protection which can alleviate stress and worry and generally make you feel more comfortable in your endeavours – be it holidaying, leaving the house unattended while at work or simply knowing your dog’s health treatment won’t break the bank.
Travel insurance can cost around £5 but could save you hundreds if your flight is cancelled or your hotel is fully booked. Breakdown cover can be less than £50 for the year and brings peace of mind while driving as even one nasty pothole can put you on the side of the road. Combined home insurance averages £144 per year, which covers your house and its contents in the case of damage – such as a fire. Ultimately, optional insurance isn’t necessary, but it can save you a healthy amount of cash and bring you a small piece of comfort as you go about your daily life.
Insurance can be expensive, and often insurance providers take advantage of the fact that a lot of people allow their insurance to auto-renew, without looking for cheaper alternatives. To make sure you get a good and fair insurance quote, we suggest following a few of these tips:
Why do I need travel insurance on holiday?
Factors to Consider when Financing a Car
A guide to managing your money: Top Money Management Tips
If you are looking for more information about different financial products or maybe just some money management guides, please take a look at the Polar Credit Info Hub.