Insurance: what you need and what you do not

Insurance is a simple idea: you pay a known, regular cost so that an unlikely but expensive event does not wreck your finances. In practice, policies are packed with terms like excessHome Insurance Explained: Buildings and Contents CoverHow UK home insurance works: buildings versus contents cover, rebuild cost, excess, common exclusions, Flood Re, how to compare policies and how to claim.Read more →, exclusions, limits and conditions, which makes it hard to know whether you are properly covered or paying for things you will never use.

Some insurance is a legal requirement. If you drive, you must have at least third-party motor insuranceCar Insurance Explained: Types of Cover and CostsUK car insurance explained: third party, third party fire and theft, comprehensive, no-claims discount, excess, what affects the price and how to compare.Read more →. If you employ people, you will generally need employers' liability insurance. If you have a mortgage, your lender will normally require buildings insurance. Everything else is a judgement about risk: how bad would it be if this happened, and could you afford to cover it yourself?

Good cover is not always the cheapest and the cheapest is not always good. A policy with a low premiumPremiumA premium is the amount you pay for an insurance policy, either as a lump sum or in instalments.Read more → may have a high excess, low limits or exclusions that matter to you. Reading the policy summary (the Insurance Product Information Document, which every policy must provide) and comparing like for like is more useful than comparing prices alone.

Since January 2022, FCA rules have stopped home and motor insurers from charging existing customers more at renewal than they would charge a new customer for the same cover, but it is still worth comparing prices each year. If a claim is rejected or you are unhappy with how it was handled, you can complain to the insurer and then, if needed, to the free Financial Ombudsman Service.