The aim of insurance is to compensate you following a loss so that you are as well off - but no better off - than you were before the loss occurred. An insurance policy is a contract and your rights as the holder of the policy will depend entirely on what is written in the contract and on any endorsements which may be added to it. Many people are chronically under-insured. For example, the average living room alone actually contains around £5,000-worth of property!
Compulsory Insurance
There are only two types of insurance which are compulsory: car insurance and employers' liability insurance.
Everyone who owns and drives a car on the public road must, by law, have at least third party insurance cover. This covers your liability for injuries to other people, their property, and their cars, caused by the use of your car while it is on a public road. In reality most of us opt for "third party, fire & theft" policies, which cover third party risk, fire damage and the theft of our car, or "fully comprehensive" policies which cover accidental damage to our own vehicle as well.
If you run a business you are legally required to have insurance to cover you if one of your employees is injured or ill as a result of working for you. The law also requires that you exhibit a certificate of employers' liability insurance at each place of work. However, if all you are doing is employing a home help or cleaner you do not need this kind of insurance. For your peace of mind, it may be worth checking that your house contents policy covers you for any kind of accident they may have while working for you.
There are no other legally required insurance policies but if you have a mortgage your lender will almost certainly require you to have house buildings insurance to cover your home and a life insurance policy to cover the mortgage in the event of your death.
Other Insurance
You should insure your belongings. House contents insurance for clothes, books, furniture, carpets, etc. The total contents of the average home are worth around £25,000!. You should remember to make allowance for 'wear and tear' on clothing and household linen.
More and more people are looking to private healthcare insurance as a way of getting round NHS waiting lists and you may wish to consider permanent health insurance (PHI) to cover illness or disability which would prevent you from working. If you have a family pet you must decide whether you can afford vets bills or whether you should insure against them.
If you are going on holiday - particularly abroad - you should take out holiday insurance. Most travel insurance is sold by travel agents but they may charge between two and three times as much as other insurers for cover that is often not as comprehensive. If you are a frequent international traveller, making two trips a year or more you will probably be better off arranging an annual travel insurance contract rather than cover for each journey. Check the cover, some annual contracts will not insure you for winter sports.
You should also check to see what cover you have already. Credit cardholders paying for holidays or air tickets with their plastic, for instance, often get free insurance. Standard cards' protection may be limited but many gold cards provide comprehensive travel insurance. If your household insurance policy is arranged on an "all-risks" basis, it means your possessions are also insured outside the home.
Shopping for insurance
You can shop around for a policy but you have little chance of influencing the terms of a particular contract. Its your money and your insurance policy, check the small print. For example, in most household contents policies insurers have the choice of settling claims by replacement, repair or cash payment without giving the same choice to policyholders. However, although you may have to accept the cover that an insurer is willing to offer, it is worth shopping around.
Remember, with any insurance policy, no claim will be paid if you are found to be in breach of any stipulated obligations under the policy, which leads on to the second point, when you receive your policy - read it! Make sure it provides the cover you expect it to provide.
Claiming on your insurance
If you are made a cash offer by your insurer do not automatically accept it. Wear and tear may be much less than the insurer or loss adjuster assumes. Also, items such as jewellery or antiques may have appreciated in value. If an item is separately insured, do not accept anything less than the specific amount detailed in the policy. If you do not want a replacement item which is being offered to you, you should demand cash. If cash is offered, do not accept anything but the full replacement value.
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See also: Moneyextra Insurance
