When you transition from child to adult, one of the biggest realisations you have is just how expensive life is – and as you get older, it only seems to get more expensive. Obviously, things like rent and mortgages become a large chunk of your expenditure, and instead of saving up for a holiday with your friends, you might find yourself saving up for council tax and utility bills. One of the additional expenses that we often don’t think about when faced with what feels like ever-increasing financial responsibility is insurance.
Insurance is essentially protection from financial loss. At first, it may seem backwards because you are paying extra in case something adverse happens, but the idea is that the amount you pay for the insurance is less than the amount you would have to pay to cover the damage if you didn’t have insurance.
For some things like vehicles, insurance is a legal requirement – you can get fined and even disqualified from driving if you drive a vehicle without insurance (this doesn’t include bicycles, but if you commute to work on your bike or you own a particularly expensive bike then it might be something to consider!)
Other types of insurance like travel insurance are optional but almost always advisory because if your holiday was cancelled, you would lose out on all the money you’d spent on it if you didn’t have travel insurance. Similarly, if you have an accident abroad, the medical bills can be extortionate but having travel insurance means you don’t have to pay a penny – or at least, any medical bills you do pay will get refunded.
The main benefits of having insurance largely include saving money. For example, if someone drove into your car and the damages cost over £1000, your insurance company would pay for this (provided you are insured), so, if your annual cover costs £400 then you are saving £600 by having insurance in the first place.
Insurance is mainly a way of reducing your financial loss in the long run, but there are also consumer protections that mean you as a person are protected rather than just your financial situation.
There are no real disadvantages to having insurance, but it is common to pay too much or to pay for insurance which doesn’t cover everything you need it to. You’ll probably be used to getting your renewal premium through the post for things like house insurance and car insurance, but you might not realise that the quote they give you on an automatic renewal is not always the cheapest. Doing a new quote – even with the same company – can often reduce your upcoming annual insurance quote by quite a bit! Another thing to consider is using comparison sites. There are plenty available online and some even come with perks like two for one cinema tickets or half price meals at restaurants if you take out insurance using a quote from their website.
In terms of making sure you have the right cover, the best thing to do is read the policy. It may seem long and boring, but it would be worth it if you found out, for example, that your travel insurance did not include cancelled flights due to adverse weather when you are going on a skiing holiday, as snowstorms are common in mountain ranges which may mean the plane can’t land. Furthermore, medical costs due to an accident while skiing can often rack up into the thousands (even just to get you off the slope), so make sure your insurance policy has a high medical cover for activity based or sporting holidays.
As a general rule of thumb, you should always get insurance as soon as you purchase something which requires it; whether it’s a holiday, a car or even a house, as soon as your insurance policy starts, you are covered.
As insurance can be expensive, it’s a good idea to start saving up beforehand. While there are usually options to repay annual insurance in instalments, there is often an additional interest rate applied which means it can end up costing more. If you have a 0% credit card, it might be worth purchasing your annual insurance in one go and repaying your credit card at 0% APR over the year rather than repaying your insurance at 5% APR over the year.
Additionally, for things like car insurance, applying for a quote too early or too late can increase the insurance quote: 21 days before you want your cover to start is apparently the current sweet spot for getting a good quote on your car insurance, but you should always look around anyway.
There’s nothing wrong with getting a few quotes from different providers – some insurers are quite competitive and may even reduce your quote if you can find a cheaper alternative elsewhere!
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