Insurance Explained

Many of us may ask, “why the need for insurance and what exactly is it for?” In simple terms, insurance is purely a way of protecting ourselves and our personal possessions against particular adverse events, if they ever occur. For instance, should we have the misfortune to have our home broken into, or be overcome by illness and consequently lose our income, by having an insurance policy we are able to protect our home, ensure we’re able to make our monthly mortgage repayments, cover auto repairs and so on.

It is of course highly possible that such unexpected events may never take place in our lifetime, however, that then leaves us with the dilemma of whether or not we are able or willing to take the risk. One type of compulsory insurance is motor insurance; if you wish to drive you absolutely must have insurance.

So how does insurance work?

Depending on which type of insurance you require, the insurance company or underwriter will work out a premium based on the information you provide. The amount you pay is determined by particular underwriting criteria. For example, when seeking car insurance you must decide the level of risk you are willing to insure. Home insurance companies may charge different rates depending on where you live. Life assurance companies generally charge a higher premium if you smoke. There are many factors to consider and there are plenty of insurers willing to offer you a competitive quote.

Some insurance companies may not be able to cover all of your needs. This could be down to the fact that the particular insurer you have chosen does not offer coverage for the type of risk you want to insure (e.g. valuables like antiques or vintage cars). You might therefore have to seek out a company that specializes in this type of cover.

It is very important that you provide the insurance company with correct information at the time of purchase as incorrect data might affect any future claims. If an event requiring insurance occurs, contact your insurer and discuss the possibility of making a claim. Do this as soon as possible as some insurers may set limits to the amount of time you are able to file a claim.

When paying for insurance you have the option to pay annually, called a single premium, or a monthly fee toward the policy. Deciding on which insurance company to choose does take some research and you should consider using a qualified broker to search the market for you.

Most insurance policies last up to one year and can be renewed before it expires. Alternatively you can shop around for a better deal when it suits you. But make sure you don't lose out by switching early and always check that a new policy covers what all your requirements. Once you shortlist a few insurers try to compare their policy terms and conditions, not just their price. Some might be cheaper than others, but may not offer the same level of protection.

Basic types of Insurance

Pure protection insurance includes:

• Life Insurance (Term Assurance)
• Critical Illness Insurance
• Income Protection Insurance
• Payment Protection Insurance - includes elements of pure protection and general insurance.

General Insurance includes:

• Motor or Car Insurance
• Home Insurance - includes: household, buildings, and contents insurance
• Travel Insurance
• Health or Medical Cover Insurance - includes: private medical insurance, health cash plans, travel insurance

If you're looking to compare insurance products, use www.moneyoutlet.co.uk for the best comparison quote service. Find the best deals on insurance in less than 2 minutes.

Published on September 20, 2007