Insurance is vital to protecting yourself, your assets and your life. Without it, any damage or any problems can become a huge financial burden and can be detrimental to your plan to become a personal finance superhero. But what exactly should you be insuring? What should you scrimp on and what should you splurge on? I’m here to break down insurance and tell you all about it. Ready for a lesson? Hold onto your hats because this one’s a doozy.
Home insurance is actually quite broad. There’s building insurance and then there’s content insurance. Building insurance protects your home from natural disasters such as storms, floods and lightning, as well as freak accidents such as large-scale fires. Building insurance is required by law if you own the house and most mortgage lenders require the insurance to get the mortgage. It’s also good to have because repairing your home in the event of one of the above-mentioned accidents can be expensive and it pays to have assurance that at least some of the costs will be subsidised.
While building insurance protects the physical building, contents insurance protects the items inside or your possessions. It doesn’t cover general wear and tear but will cover you in the event of a burglary or a fire or flood. If something needs replacing, you’ll usually get a replacement but the excess on these can be high. Either way, it’s pretty important to get.
Car insurance is a legal requirement for all drivers and vehicles so you need at least third party cover. There are three types of insurance: third party, third party, fire and theft and comprehensive. Third party just covers other people that are involved in an accident or any damage to other people’s proper or vehicle. What this means is, if you are injured or if anything happens to your car, you will have to pay the costs. Third party, fire and theft is the same as third party, but you are covered if your car is stolen or set on fire. Comprehensive cover covers everything, including your own car. Car insurance can be expensive, so always shop around.
There is also a type of cover called Guaranteed Asset Protection insurance (GAP insurance). This covers you if your car is written off/unrecoverable and pays the difference between what the insurance company pays out and either what you paid for the car, what you still owe or what the same car would cost new. This type of cover isn’t totally necessary and you need to judge if it is right for you.
When you die, there are costs associated that can mount up and, if your children/partner are dependent on you financially, they will need help with the cost of living when you’re gone. Life insurance pays out either a lump sum or payments once you die to your dependants. This type of insurance is particularly important for families or parents and can help your loved ones carry on financially once you’re gone.
If you’re young and healthy it can be relatively inexpensive to get covered and will pay out a pretty reasonable sum. You may not get cover if you pass away from a pre-existing medical condition.
If you’re going away on holiday, it’s probably best to get travel insurance. This covers you for medical emergencies, personal liability, lost property and cancellations, depending on the plan you choose. Medical care abroad can be particularly expensive if you’re not a citizen, so travel insurance is necessary for if anything happens to you and you require any treatment/medication. Most policies provide up to £1 million of medical cover.
If you’re going on an adventurous holiday like skiing or volunteering, it may be harder to find affordable cover because the risks are higher, but because the chance of needing to use the insurance is greater, it’s worth investing in the extra costs. The lost property cover is never great, but it’s better to get a little than nothing at all.
A lot of people own pets. But how many people can afford medical treatment for pets? When your dog, cat, rodent, reptile, bird or rock gets ill, they need medical attention just like us, but they don’t have a national health service to make them better, it’s going to cost you money. Getting pet insurance covers the cost of treatment, but not annual vaccinations or neutering. It’s not a legal requirement, and if you can afford it out of your own income it’s not wholly necessary. If you don’t get pet insurance and you can’t afford treatment out of spare income then you shouldn’t have the pet.