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Insurance - introduction

None of us know what is going to happen to us in the future but what we do know is that accidents happen. This is the simple idea that the insurance industry is founded on. You never know when you might crash your car or come home to find someone has broken into your home. But what you can do is protect yourself financially against something going wrong at some point in the future. This protection is what we call insurance.

Insurance can seem complicated but the basic principles are really quite straightforward.

  • An insurance company works out how likely it is that an accident or event will happen and what it would cost to put it right.
  • Based on this, the insurance company sets what is know as a premium. This is the amount it asks you to pay in order to protect yourself against the accident or event. The cost of the premium is often spread so you pay it on a monthly basis.
  • If whatever it is you have insured yourself against happens, you then make a claim to your insurance company and it pays out the agreed amount.


Activity: Why not try our interactive quiz to test your knowledge
of insurance.

Taking out insurance
There are hundreds of insurance policies on offer and you can buy them from many different places.

  • You can go direct to an insurance company, usually via a call centre or the company’s Internet site these days.
  • You can buy many policies from places such as banks or supermarkets.
  • You can buy some insurance policies alongside the products and services they cover. Travel agents, for example, usually sell travel insurance and many shops offer breakdown cover for the products they sell.
  • You can use an insurance broker to help you find the right policies.

It is up to you where you get your insurance. If you are applying for a mortgage or booking a holiday, for example, you don’t have to buy the insurance policy that the bank or travel agent may offer.

Interesting Fact: There are more than 800 insurance companies authorised to operate in the UK*.

*(UK Insurance Key Facts, 2003/4, Association of British Insurers)

Signing on the dotted line
It is important to read an insurance policy carefully before signing it to make sure it provides the cover you are expecting and that you are aware of anything it might exclude. With some policies you get what is known as a cooling-off period, which gives you the chance to read through the policy thoroughly and change your mind within a set amount of time if you feel you need to.

Different types of insurance
There are many different types of insurance. In fact, as long as you’ve got enough cash to pay the premium, it’s possible to insure yourself against most things. You’ve probably heard stories of film stars insuring their bodies or musicians their voices but, for most of us, there are just a few insurance polices that we might need to consider. These can be grouped under two main headings:

 

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