What is it?

In simple terms, insurance allows someone who suffers a loss or accident to be compensated for the effects of their misfortune. It lets you protect yourself against everyday risks to your health, home and financial situation.

If you are a risk taker you may think you don't need insurance, whereas if you're very cautious you may be tempted to take out every policy available. The truth probably lies somewhere in between. Before you take out insurance, it's important to compare different policies and read the small print.

Different types of insurance

• Travel insurance: Designed to pay out if your holiday is cancelled, your luggage is stolen and - most importantly - if you become ill or have an accident. If someone falls ill while on a foreign holiday, the medical treatment could run to tens of thousands of pounds, which you may have to pay for if you don't have travel insurance.
• Contents and building insurance: Contents insurance covers the contents of a home such as furniture, carpets, clothes, television, white goods, jewellery and so on. In other words, what you would take with you if you moved. Buildings insurance protects against damage to the actual structure of the home and to its fixtures and fittings. Contents and buildings policies can be bought separately or together in one package.
• Car insurance: Car insurance isn't an optional extra; law says that you must have basic car insurance (called 'third party') before you're allowed to drive on the roads. It means you're insured should you injure other people or cause damage in an accident.
• Life insurance: A life insurance policy is a means of providing for your dependents should you die early.
• Private medical insurance: This covers the costs of private medical treatment for curable or treatable short-term illness or injury. It means that, should you become ill, you could be treated immediately privately rather than being put on an NHS waiting list.

• Income protection insurance: This allows you to insure your income if you become too ill to work later on in life.
• Accident, sickness and unemployment cover (also known as PPI): If you are planning on buying a house or taking out a loan, you may want to consider payment protection insurance in case you become unemployed or ill. However, these policies can be expensive.
• Pet insurance: This helps you foot the vet's bills if your pet gets poorly. By paying regularly into an insurance policy it means you have paid for the bill gradually rather than having to find the money in one go (possibly when you can least afford it).

Excess charges

Insurance policies often have hidden costs and hard-to-understand small print. Look out for 'excess' charges; the higher the excess, the more of the first part of any claim you will have to pay. Some policies have an excess of £50, others of £200. You can sometimes reduce the premiums you pay by volunteering to take a larger excess.  

How do I make an insurance claim?

• Keep any evidence: Depending on the situation either get the names and addresses of any witnesses, keep any relevant receipts or take photographs.
• Contact the broker/insurer: Give them a ring then follow up with a letter or email, keeping a copy for yourself. They should send you a claim form or tell you how to claim online.
• Depending on the type of policy you have, you may be asked to provide two or three professional estimates for the repairs with the form or the insurance company may arrange the repairs from an approved panel of companies.

Don't assume you're covered for all eventualities

It's easy to assume that, once you've bought insurance, you're covered for everything, but that's unlikely to be the case. Policies vary widely between different providers so it's really important that you read the small print (dull as it is) or talk to a broker who understands the differences between them.  If you're unsure about what is and isn't covered, give the insurance company a call to double check and make sure you get the details confirmed in writing.

Who can I complain to?

If you aren't happy with the way your insurance company is acting you can contact the Financial Ombudsman Service on 0300 123 9 123 for free, independent advice on resolving disputes with insurance firms.

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Updated: 17/10/2011