Insurance products overview
There are many different insurance products available, but they all have a similar basic aim.
Insurance is simply a way of financially protecting a specific item of value to you. You pay a fixed sum of money, known as an insurance premium, and in exchange, the insurance products company will pay you back, either a sum of money if your item of value is lost, damaged, broken or stolen, or they may replace the item itself with another one.
Why do I need insurance?
You may need some insurance products if you have bought an expensive item, such as a new iPhone or laptop, which you wouldn’t be able to replace straight away if something happened to it. You might consider that paying say £20 per month, is good value for the peace of mind it gives you, knowing that if your £750 laptop was lost or stolen, you would get a replacement.
The cost of that peace of mind is of course, the £20 per month that you are spending on insurance premiums. If you don’t lose or break your laptop, and never need to make a claim, then those insurance premiums have gone.
There are many different types of insurance products for all sorts of items of value, different times of our lives, and different ages. A few examples are shown below:
Motor insurance – is compulsory if you drive a vehicle on the roads.
Breakdown insurance – may be useful if you drive, and your car breaks down.
Gadget insurance – covers the cost of repairing or replacing common electrical gadgets, such as phones, laptops, iPads, computers, gaming consoles etc.
House insurance – protects your home in case of fire, flood or other damage.
Health insurance – covers the cost of private medical treatment, if needed.
Critical illness insurance – provides a lump sum, or income, if you are diagnosed with a serious life-threatening illness.
Life insurance – provides those you nominate, with a lump sum of money, if you die.
All insurance products have a policy document, which sets out the rules. You need to read this very carefully, to understand what you are covered for. There are always exceptions and exclusions, and maximum payout amounts, and it’s up to you to make sure you get the right cover for your own needs.
For example, if you want to cover your new £1,000 iPhone, whilst on holiday in Spain, there is no point in buying an insurance policy which has a maximum pay-out of only £200, and also excludes any damage or loss outside of the UK.
Insurance products can be a very useful tool on your journey to financial freedom, but it can also be complicated. You may wish to use the help of an insurance expert, such as an insurance broker, when the time comes for you to consider such things.
Some years ago, I was thankful for taking out landlords insurance, when a tenant of mine decided to stop paying his rent, and then refused to move out. Landlord and tenant laws are quite strict in the UK, and it is very important you get the legal process correct, or it can cost you dearly. Thankfully, the insurance company dealt with all the legal proceedings and paid for them, and I eventually managed to evict the defaulting tenant, some three months later. This is a good example of insurance protecting an “asset”, and responding when needed.
TIP: If you still live at home, many of your gadgets should be covered under any household insurance policy that has been taken out, so there is no need to buy a separate policy.