You can buy insurance policies for many aspects of your life
Some types of insurance you have to take out by law such as motor insurance if you drive a vehicle; some you may need as a condition of a contract such as buildings insurance as a requirement of your mortgage; and others are sensible to take out such as life insurance or saving for a pension.
While it is a good idea to make sure you are not paying for insurance that you don’t need, you should always think about what would happen if disaster struck and you didn’t have cover to protect you.
You can buy insurance policies for many aspects of your life, for example for your health, home, car, business, or retirement.
An insurance policy is the contract that you take out with an insurer to protect you against specific risks under agreed terms.
How it works
When you buy a policy you make regular payments, known as premiums, to the insurer. If you make a claim your insurer will pay out for the loss that is covered under the policy.
If you don’t make a claim, you won’t get your money back; instead it is pooled with the premiums of other policyholders who have taken out insurance with the same insurance company. If you make a claim the money comes from the pool of policyholders’ premiums.
Standard policy conditions
Although policies have different terms and conditions, in general there are three main principles that are common across all insurance policies. These include:
losses must not be deliberate
cover is provided for the actual value of the property or item that has been lost or damaged (its replacement value), but does not include any sentimental value
there needs to be a large number of similar risks so that the likelihood of a claim can be spread among other policyholders. It must be possible for insurers to calculate the chance of loss so that a premium can be set which matches the risk
