First of all, what exactly is insurance and why might we need it? The definition given by many is that insurance is a means of protection for financial loss and that the insurer agrees to compensate for the losses incurred on a specific event, though I feel that doesn't fully explain what it is for someone who is encountering it for the first time.
Let’s look at a different way of explaining what insurance is. Imagine you've just bought the latest phone, maybe the iPhone 17 or top of the range Android phone. Whether you have got it as part of a phone contract that you pay monthly for or have bought it outright you are walking around with an item that is worth in excess of £1000. What would happen if you lost that shiny new phone or it got damaged and needed a new screen? How would you pay for that? You could take out insurance. You would pay a monthly or annual fee to an insurer who would pay for any loss or damage over on agreed amount that you would pay called an excess). On something like a phone, you may be asked to pay the first £50-100 and the insurer would pay the rest. When you take out insurance on an item you will get a certificate of insurance outlining what the insurer will and will not cover. Insurance helps to reduce financial risks and provides a safety net for major life events
Here are. some of the different types of insurance you can get These include:
• House - buildings and contents
• Car - third party and fully comprehensive
• Gadget-includes loss and damage
• Travel- includes lost items, illness while away, cancellation
• Private medical insurance
• Pet insurance
• Household appliances-repair or replacement
• Life insurance
• Personal liability
• Dental insurance
• Permanent health insurance
There are 3 key words that you will find on your insurance renewal letter/certificate and this is what they mean.
Premium
This is the cost of buying insurance protection. This can be paid annually as one lump sum or monthly spread over the whole year. If you choose to spread the cost over 12 months you need to remember that you will be paying interest on the premium price as you're in effect taking out a credit agreement with the insurance company or broker.
Policy
This is the contract or agreement between you and the insurer. This will include what losses are covered, what the excess is, any exclusions on the policy and the limit on claims in a specified time period.
Excess
This is the portion of the loss that is not included in the insurance. This amount will be agreed up front and forms part of your policy.
Exclusions
These are the things that your policy does not cover. This could include, for example:
• Damage to the property that is a result of poor maintenance
• A pr-existing medical condition
• Earth movement such as landslides, earthquakes and sinkholes
• Water damage from things like floods or sewer back-ups.
So, your shiny new phone is not so new anymore and the year you insured it for is nearly up and you want to renew it. What happens next? Whether you intend to renew or not your insurer will send you a quote for the premium for the next years cover. The cost of the policy may have gone up from what it was the previous year. This can be affected by a number of different factors.
Underwriters 'write' insurance by calculating the risk of a claim being made and how much to charge to compensate for this risk. Usually, the larger the risk the larger the premium for the insurance. They calculate this risk using statistical models which factor in risk factors such as:
• Age
• Location (usually for home and car insurance-potentially the higher number of burglaries and theft of or from cars in your location, the higher the insurance premium
• Health - any pre-existing conditions could Make for higher premiums or even having health insurance refused
• Claims history - someone who has not Made any claims would get α lower premium quote than someone who has made multiple claims
• Marital status.
If you're looking for car insurance there are a number of surprising things that are taken into consideration.
• Where you live - a built-up area can be seen as increasing your chances of accidents as there will be more cars on the road. If you live by the coast or near a river that is prone to flooding the quote will take into consideration the potential for water damage
• Where you park, at work and at home - parking on your drive or secure company car park will reduce the chances of being hit by a passing motorist, though parking inside a garage is considered more risky than your drive as there is the potential for hitting the car when entering, or exiting the garage.
• The job you do is considered a risk factor and covers a number of different things. Occupations associated with high stress levels are considered a higher risk, so while α senior job may indicate responsibility you may drive a high cost, higher powered car which is more of risk. Salespeople or delivery drivers who spend a lot of time on the road are more at risk of accidents and so get charged higher premiums.
• Mileage - this doesn't only include those who drive a lot of miles, drivers who cover fewer miles than the average driver are considered more of a risk as they could be seen as being accident prone and lacking in confidence.
• Age - though drivers in the 17-19 age bracket only make up 1. 5% of Uk licence holders they are involved in 9% of serious and fatal crashes. In the same way drivers over the age of-75 are considered to be higher risk despite the fact they drive less frequently than others and are less likely to be doing so at peak times.
• Modifications - expensive stereos and speakers can make your car more attractive. to thieves. Even having stickers or your car vinyl wrapped is thought to be more of a risk, not for the owner of the car but for those around them and may prove distracting.
No claims discount
Some types of insurance policies offer a discount on renewal if you haven't made any claims since the beginning of the policy, this is known as No Claims Discount. This discount can build up over a number of years. With car insurance some insurers provide discounts for up to 8 years of no claims though the maximum is usually 5 years. If you do need to make a claim the insurance company may not remove the discount entirely but may reduce it. It is also possible to protect your No Claims Discount from being removed or reduced by paying a higher premium.
How to choose an insurance policy.
It is best to compare multiple insurers to see which ones offer the best cover for what you want. To save you some time there are websites which will make this comparison for you though be aware that not all insurance companies are included as some prefer you to have a look at them directly
You need to choose the policy that is right for you by taking these factors into consideration
• How much you are willing to pay, don't forget if you opt to pay monthly the final figure will be more than if you'd just paid the whole amount upfront.
• What you would like to be covered in your policy.
• How much the excess is.
• If there are any restrictions on claims.
If you need to cancel a policy before it runs out it is possible although you may need to pay a penalty for terminating the agreement before the end of its term.
It is important that you provide the insurance company with all the relevant information when setting up the policy. If you don’t, they may not pay out if you need to make a claim.
