Different types of insurance – your questions answered…

Since my last blog about insurance following the Covid-19 pandemic, I have had a number of questions about the different types of insurance that are available.

It is confusing as you can insure everything from your mobile phone to your house to your pet cat!

But here are the most common types of insurance that I deal with and a brief explanation of each. I hope it helps.

Home and contents

Let’s start with perhaps the most obvious and straightforward, insurance for the roof over your head and your property!

As the name suggests, home and contents or building and contents insurance, looks after the building and your possessions.

You can buy them as individual policies, or as a combined building and contents policy which is normally cheaper than two individual ones.

The buildings insurance covers the cost of rebuilding your home if it is damaged in a storm, flood or fire or by lightning, vandalism, falling trees, motor vehicles etc. Cover can differ and it is worth checking what you are and aren’t covered for.

Contents insurance covers you for damage or theft to possessions in your home, garage or shed.

The key thing with this – and all other insurance – is to ensure you are not under-insured. If you don’t insure yourself against the full value of rebuilding your home or the full value of your possessions, your insurer might invalidate your claim and refuse to pay out or only pay a percentage of what you thought you were going to get.

Life insurance

life insurance

Again, as the name indicates, this insurance protects your loved ones financially if you die.

A frightening, staggering, number of people don’t have life insurance, even though it is really quite cheap – about the cost of a few of your favourite coffees each week, and you can also guarantee the monthly premiums, meaning they will never increase in price.

If you are young, free and single, then you probably don’t need life insurance, but as soon as you have someone who depends on you, like children or a partner, then you will.

The simplest type of life insurance is level term insurance, where you can insure yourself and/or your partner for a set amount which will only be paid out if one of you dies within an agreed period – the higher the amount of cover and longer the term, the more the policy costs. The amount of cover you choose will stay the same throughout the term of the policy.

Then there is decreasing term life insurance which is there to primarily protect your mortgage. As your mortgage amount decreases then the decreasing term life policy reduces in line with the mortgage amount.

There is also whole of life insurance, which pays out when you die, rather than for just a fixed period.

Income protection insurance

A million people every year are unable to work due to illness or injury. So income protection insurance is a policy you can take out to cover your income if that happens to you. It’s a long-term policy which pays out up to approximately 65% of your gross income if you can’t work because of accident or sickness. The policy runs until you die, retire or the policy comes to an end. If you make a claim the benefit will be paid out monthly. You can usually make multiple claims against income protection policies.

Accident, Sickness & Unemployment

This is similar to Income Protection in that it pays out an agreed monthly amount if you can’t work through accident or sickness as well as covering you if you get made redundant. However, this is a short-term policy which pays out for up to 24 months. The idea is that it can cover your monthly expenditure, including your mortgage payments and, in the case of redundancy, means you don’t have to rush into the first job that comes along, giving you up to 24 months to find a suitable job, knowing your monthly expenditure is covered. Again, you can make multiple claims.

Many people think they won’t need income protection or accident and sickness cover because their employer or the government will give them sick pay. In some cases this might be right, but in many others you might not be able to get by, particularly if you are off work for a long time. State benefits, for example, pay just £80 to £100 a week.

Critical illness insurance

Critical illness insurance is a one-off, lump-sum payment that is paid out if you suffer a critical illness or injury, as specified in your policy. After the pay-out, the policy is normally ends. The policy isn’t linked to your earnings and you can insure for however much you wish. Typical claims include cancer, strokes and heart attacks. You can take out the cover on a level term basis or a decreasing term basis.  A decreasing term critical illness policy is normally taken out to run alongside a decreasing term life policy to fully protect a mortgage. Critical illness policies can be confusing and vary enormously in what illnesses they do and don’t cover and even the severity of the condition.

I hope this helps to explain some of the different types of insurance policies available. As you can see, insurance can be complicated and it is really important that you get the right cover for your exact needs and circumstances. Often your individual needs won’t be in the ‘one-size-fits-all’ policies that comparison websites offer, which is why it is important to get the right advice when taking out insurance policies.

For advice on any insurance or mortgage needs that you might have, please contact me for a free, no obligation discussion, on 07767 692653.

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