insurance introduction

Insurance is a very old idea. As far back as 3000BC Chinese merchants spread their shipments among a number of different vessels so as to manage their risk of a loss. Lloyds, the insurance market, has been selling insurance in London since the 1600s, after a group of ship owners met in a coffee shop to discuss sharing the cost of dangerous voyages. Nowadays you can insure everything from your car to your body parts, from your legal expenses to the type of weather that you want on your holiday. But the idea behind insurance is simple. Insurance is taken out when you pay a set amount of money, known as a premium, to an insurance company that in return agrees to cover your costs if a certain pre-determined event occurs. The insurance company is, in effect, taking on your risk.

The finer details of your agreement, such as the exact nature of the risk and the amount that you are insuring against, are contained in what is called a policy document. This document is very important because it sets out in what circumstances your insurer will cover your costs. Needless to say, this often involves a lot of small print, which is why it is sometimes a good idea to get help with your purchase from an IFA or insurance broker. Talking to an independent expert is also essential to ensure you obtain the right insurance cover for you - many people have specialist requirements or circumstances that need a more bespoke policy.

What do I need to consider when buying insurance?

There are many different types, or classes, of insurance, including motorbike, health, travel, caravan, business, buildings and pet insurance. Bespoke policies are available to cover almost anything and can be arranged through your IFA or insurance broker. This factsheet concentrates in particular on home and contents and motor insurance, although many of the principles discussed will be relevant to other types of insurance.

Home and contents insurance

When insuring your home and its contents you must think about how much your assets are worth. Most people can easily cover their home and contents with a normal insurance policy. If you have higher value goods, such as antiques, art or jewellery, or expensive furniture and fittings, such as designer electrical goods, you may need to consider a mid-net worth or high-net worth policy. Not all insurers sell these policies, which means that you may have to buy them through an IFA or an insurance broker. There are a few questions you should ask when you buy your home and contents insurance.

1. Do I own expensive single items? If so it is essential to have them named individually on a policy.
2. Are my belongings covered when I take them out of the house?
3. Will my home security meet my insurer's minimum requirements?
4. Are external goods, such as my garden furniture and the contents of my shed, covered by my policy?