In the financial world, you can’t go more than two seconds without someone mentioning insurance. When you’re sorting out your money, insurance crops up time and time again. Some of you will already have different types of insurance, but what is it and do you really need it?
There are technical explanations for this, and there are simplified ones. To keep everything as easy to understand as possible, let’s go with a simple definition!
Insurance is when you have an agreement with a provider to offer compensation if something goes wrong. For example, let’s say you insured your mobile phone. If it breaks, your insurance provider can pay compensation to help you afford repairs or a new phone altogether.
Essentially, you can think of insurance as a financial safety net!
Short answer yes, long answer…it depends.
Technically, you do need insurance as there are different types of insurance that are basically essential. However, there are also loads of other types of insurance that you simply do not need. If you look at the insurance industry, you’ll see the following types are the most common:
- Car insurance
- Home insurance
- Life insurance
- Health insurance
- Travel insurance
There’s a huge chance you will need – or already have – at least one of these insurance premiums. Certainly, car insurance is legally required to drive your car on the road. Similarly, home insurance is usually put down as a requirement by mortgage lenders when you get a loan to buy a house.
However, other types of insurance are optional and depend on your life circumstances. Even if you go on holiday, you don’t technically need travel insurance; it just exists to put your mind at ease if your flights are cancelled or your luggage gets lost.
In summary, you do need insurance in certain scenarios. Still, it is an optional add-on in a lot of situations, existing to give your financial protection.
To get insurance, you will need an insurance policy, which is a contract that you take out with the insurance provider.
Effectively, this works by making you pay a premium – this is a regular payment – that provides you with coverage. The more coverage your policy has, the higher your premium will be. Basically, if you want to be financially covered for lots of different elements, you need to pay more for it.
What can you be covered for? It depends on the insurance policy. For car insurance, you can be covered for things like accidental damage and theft. For home insurance, you can be covered for weather damage, faulty elements of your property, and theft of property inside. If you suffer from anything that your insurance covers, you can make a claim. The insurance provider will then pay out compensation to help you financially deal with your loss. The amount of compensation they pay will be up to a certain amount depending on your policy. As such, they can sometimes cover all your losses, or just provide a financial boost so you pay less out of pocket.
In conclusion, insurance is a key financial product that can protect your money in many situations. It’s a legal requirement when driving a car, but other forms of insurance are optional. Therefore, it’s up to you to decide if it is worth paying for an insurance policy to get the financial protection.