How insurance works

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    The amount you pay for insurance will be based on the information you give the insurance company (the underwriter) and the type of risk you want to insure. Insurance companies use underwriting criteria (for example where you live, if you smoke or what type of activity you would like to be covered) to help them work out the price (premium) of the insurance.

    You might find that some insurance companies may not be able to give you the cover you need. This could be because that particular insurance company doesn’t offer insurance for the type of risk you want to insure (for example things like antiques or vintage cars). If you want this type of insurance you might have to go to a company that specialises in this type of insurance cover.

    The insurance company agrees to pay out if the event which you’re insuring against happens. For example, your travel insurance policy may pay out for loss of luggage. It is important that you give the insurance company the correct information when buying insurance as incorrect information might affect or even invalidate your claim.

    You pay either a sum for the whole year (or sometimes longer), called a single premium, or a regular premium, usually monthly, for the policy. You can choose which company’s policy to buy yourself or you can go to an insurance broker, who’ll help you choose – see Getting help.

    There are also some types of insurance which are designed to be long term (such as protection and life insurance). However, many types of insurance last for one year at a time and you can renew your policy when it ends, or go somewhere else for a better deal. But make sure you don’t lose out by switching and always check that a new policy covers what you need it for. Always compare what’s covered by a policy, not just the price. Some might be cheaper than others, but they may not offer the same level of protection.

    See also on

    Income protection insurance or borrowing

    How to shop around for general insurance

    Insurance is not compulsory, buy insurance for your needs

    Tips to help you identify the areas you may need some or additional cover