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Why is insurance needed?

Insurance is a way of receiving financial compensation should you or your property come to harm.

Only some types of insurance are mandatory by law; businesses are legally required to hold employers’ liability insurance (EL) and it’s illegal to drive on public roads without motor insurance. Meanwhile, some mortgage lenders stipulate you must take out home insurance – in particular, building cover - before they’re willing to loan you money.

However, there are other circumstances when insurance may be necessary. For instance, while not compulsory, it’s often encouraged you take out travel insurance before holidaying abroad to protect against any financial losses incurred as a result of delays, stolen luggage and medical expenses. Similarly, pet insurance could help mitigate expensive vet bills if you have a four-legged friend that were to become sick or injured.

Those with dependants may also want to consider life insurance – this form of cover safeguards your family’s financial future by paying out a lump sum upon your death, which could then be put towards mortgage repayments and other everyday expenses.

How to compare insurance policies

When comparing insurance policies, there are a few key questions to keep in mind:

• What do you want to cover?

Insurance isn’t ‘one size fits all’ – most providers offer different levels of cover to suit a variety of circumstances, so it’s good practice to shop around for a policy that best meets your needs. While exclusions may apply, some insurers can incorporate extras that aren’t included in a standard policy, allowing you to tailor cover to your situation.

That being said, be wary of being upsold cover you don’t need. For instance, you may want to check whether your mobile phone is protected under your home insurance or as part of a packaged bank account before taking out gadget insurance.

• How long do you need cover for?

Some insurance policies need to be reviewed each year. Other policies, however, offer greater flexibility when settling on the length of term. Ultimately, how long you need cover for will depend on your personal circumstances.

• How many people do you need to cover?

Couples living together may be interested in taking out joint home or life insurance policies, while multi-car insurance policies are available to households needing to cover multiple drivers and vehicles.

Children under the age of 18 can in some cases also be protected as part of a family private medical or critical illness plan.

• Are there any fees?

Cooling-off periods give you the opportunity to change your mind and receive a refund after taking out a policy, but bear in mind some insurers may still impose cancellation fees if you’ve been covered for a certain number of days or made a claim.

Similarly, updating your policy at a later date can also incur a fee; to avoid this extra expense, be sure to consider all aspects of a policy before purchasing insurance.

Keeping insurance quotes low

If you’re looking to reduce the cost of insurance, it’s important to compare policies rather than simply auto-renew with your existing provider.

Making changes to your lifestyle could also help you get low insurance quotes; life insurance premiums, for example, can be driven up if you’re a smoker, while it’s likely you’ll pay more to insure a car with a bigger engine.

Alternatively, if affordable, you could consider increasing the amount you’re willing to pay towards claims made (otherwise known as the ‘insurance excess’).  By covering a larger part of any potential claim, your premium may be reduced as it will likely mean a lesser cost for your insurer.

Related Guide: What is an insurance excess, and can it lower my premium?

Although you may want to keep the cost of your premiums down, keep in mind taking out the cheapest insurance policy isn’t always best. When getting quotes, it’s important to respond honestly to any questions asked, even if you think your answer may increase the price of the policy. Failing to provide accurate information could put you at risk of not being fully covered and therefore unable to make a claim.

Related Guide: Do insurance quotes from comparison sites affect my credit score?