Insurance World

Protecting your home
Although you have no legal obligation to insure your home, your mortgage company will want to protect their investment with buildings insurance. However, it is also worth protecting your own investments, so even after you’ve paid off your mortgage, you should ensure you’re financially covered.

Home contents insurance and personal possessions insurance
According to Money Observer, the average home has Ј44,000 of contents and replacing this without insurance would be almost impossible for most people. An average premium is about Ј150 a year and will provide cover up to Ј50,000. The majority of contents insurance policies additionally provide public liability and personal legal expenses and although most people don’t claim on these, they could be very useful if needed.

Personal possessions insurance is worth taking out because often it covers your belongings outside the home, as well as inside the home, and is often incorporated into your contents insurance. Personal possessions insurance is also frequently referred to as all risks insurance and offers cover on possessions that are lost or stolen outside of the home.

Income protection
Income payment protection insurance is recommended by most insurers as the most appropriate way to safeguard your mortgage repayments and any other monthly bills. Kevin Carr, a senior technical advisor at LifeSearch believes that this is a better option than payment protection alone, including accident sickness unemployment (ASU) and mortgage payment protection insurance (MPPI). In a recent statement, Carr revealed that “the banks and mortgage lenders make huge profits from sales of payment protection. For instance, 17% of Lloyds TSB’s profits come from this.”

Debts – you don’t want them to haunt you
In addition to safeguarding your income to assist with loan repayments, you may also wish to consider personal finance products such as life assurance and critical illness insurance, which, under certain conditions provide a lump-sum that can be used to pay off the mortgage in difficult circumstances. The choice of life assurance or critical illness cover will depend on personal variables. For example, if you are single and have no dependents, then nobody would benefit from your life being heavily insured. However, should you be diagnosed with a serious illness, a lump sum might be helpful to ensure you maintain a reasonable quality of life. Personal accident plans can be helpful if you believe the specific conditions of the policy would be relevant to you. Examples include insurance providers such as Nationwide who will provide cover of around Ј50,000 for the loss a limb, Ј10,000 for a hip and Ј2,500 for a toe, in relation to a premium of Ј4.95 month.

Health insurance / private medical insurance
There are many difference financial products available for insuring your health and they vary in accordance with your stage as life. Examples include critical illness insurance, as discussed above, as well as long-term care insurance and medical insurance, which may also be referred to as private medical insurance or simply health insurance. Wikipedia argues that health insurance is one of the more controversial forms of insurance due to the tumultuous debate of insurance companies remaining solvent, against the needs of its customers to actively protect their health.

One of the main problems insurance companies face is the issue of “adverse selection”, a term used to describe the increased likelihood of sick people signing up for health insurance. Health insurance companies argue that those people seeking health insurance are often those with existing medical problems, those who are much more likely to have medical health insurance problems in the future and those who may engage in “risky behaviour” such as excessive alcohol consumption and smoking. Products such as health insurance tend to fuel fiery debates of the moral argument of health insurance costs and the question that if people pay for health insurance, are they more likely to lead a “risky” lifestyle in the knowledge that they are covered.

Travel insurance
Travel insurance isn’t complicated, but there are a few considerations you should bear in mind. Travel insurance typically covers issues such as cancellation, loss of baggage and medical expenses. However, Money Observer ( http://www.moneyobserver.com/ ) recommend better value by including baggage cover in your personal possessions insurance and not as part of your travel insurance policy. The consumer financial magazine also recommends extending your motor insurance – to ensure your car is covered when driving abroad.

Moneynet ( http://www.moneynet.co.uk/ ), a personal finance consumer information site, makes the point of shopping around for your travel insurance and avoiding the high street travel agents. According to their insurance guide:

“Since January 2005, it is especially important to avoid the travel agents when buying travel cover; from that date, the insurance industry falls under the regulation of the Financial Services Authority, giving that body the ability to investigate and take action on behalf of consumers. Tour operators and travel agents, however, are not subject to this regulation, so if you have a complaint about travel insurance purchased from a travel agent, the FSA and the Financial Ombudsman Service will not be able to intervene on your behalf.”

In a recent press release, moneynet also blasted high street travel agents for exorbitant insurance, stating that, “major high street players like Thomas Cook, Thomson and Travelcare, which between them account for around 70 % of the travel insurance market, levy premiums that are typically twice as expensive as buying cover online.”

Weddings – insure your finances for better and for worse
Insurance may not be romantic, but it’s important and if your wedding doesn’t go according to plan, it can be very expensive. Wedding insurance will typically cover dress damage, loss of rings and retaking the photographs if anything goes wrong with the photographer or prints.

Insurance doesn’t always come with guarantees, but shopping around to make sure you have the most appropriate protection for yourself, your partner and your family will give you a certain amount of peace of mind.

Disclaimer:
We only show you the way – it is up to you to follow the path of enlightenment. All information, is intended for general information only and should not be construed as advice under the Financial Services Act 1986. You are strongly advised to take appropriate professional and legal advice before entering into any binding contracts.

What is insurance?

Insurance is a means of providing protection against financial loss in a great variety of situations. It is a contract in which one party agrees to pay for another party’s financial loss resulting from a specified event.

Insurance works on the principal of sharing losses. If you wish to be insured, against any type of loss, agree to make regular payments, called premiums, to an insurance company. In return, the company gives you a contract, the insurance policy. The company promises to pay a certain sum of money for the type of loss stated in the policy.

History

Insurance is thousands of years old. The Code of Hammurabi, a collection of Babylonian laws of 1700BC, is believed to be the first form of credit insurance. A borrower did not have to repay a loan if personal misfortune made it impossible to do so. Insurance as we know it today can be traced to the Great Fire of London in 1666, which devoured 13,200 houses. In the aftermath of this disaster, Nicholas Barbon opened an office to insure buildings.

Types of Insurance

Insurance generally covers situations involving pure risk – that is, situations in which only losses can occur. Such situations include fire, floods and accidents. People also buy insurance to cover unusual types of financial losses like, a dancer might insure her legs against injury. There are mainly three types of insurance policies sold:

1. Life Insurance

A life insurance policy provides that the insurance company will pay a certain amount when the person dies. This may be paid in a lump sum or in installments to the beneficiary [people named by the policyholder to receive the death benefit]. Some types of life insurance policies also enable policyholders to save money. Such policies have a cash value. A policyholder may borrow money against the cash value or surrender the policy for its cash value.

Annuities

These are savings plans sold by insurance companies to provide a fixed and regular retirement income. If the annuitant [owner of the annuity] dies before receiving the guaranteed number of payments, the insurance company must continue the payments to the beneficiary.

Dividends

Some insurance policies refund part of the premiums in the form of dividends. Such policies are called participating policies. An insurance company pays dividends if the money it collected in premiums exceeds the amount needed to pay benefits and administrative costs. Dividends may also include a share of the profits the company earned on investments made with premium funds. Dividends are most commonly paid on life insurance.

2. Private Health Insurance

Health insurance pays all or part of the cost of hospitalization, surgery, laboratory tests, medicines, and other medical care. The rising cost of medical care has increased the need for adequate health insurance. You could suffer a major financial hardship without such coverage, especially in case of a serious illness or accident.
Dental insurance is one of the fastest-growing types of health insurance. It helps pay for a wide variety of dental services.

3. Property & Liability Insurance

Individuals and businesses buy property and liability insurance to protect their assets against financial loss. Property insurance provides direct compensation if a policyholder’s possessions are damaged, destroyed, or lost as a result of perils. Liability insurance protects individuals and businesses against possible financial losses if their actions result in bodily injury to others or in harm to property owned by others.

The main types of individual coverage are:

• Homeowners Insurance

This provides protection against losses from damages to an owner’s home and its contents.

• Automobile Insurance

This is the most widely purchased and most important kinds of insurance. Drivers are legally responsible for any costs arising from accidents they cause. This insurance protects a policyholder against financial losses from accidents.

Financial viability of Insurance Companies

Financial stability and strength of the insurance company should be a major consideration when purchasing an insurance contract. An insurance premium paid currently provides coverage for losses that might arise many years in the future. For that reason, the viability of the insurance carrier is very important. In recent years, a number of insurance companies have become insolvent, leaving their policyholders with no coverage (or coverage only from a government-backed insurance pool with less attractive payouts for losses).

How Insurance Is Sold

Most insurance companies sell policies through agents. Exclusive agents are employees of an insurance company who sell only that company’s policies. Independent agents sell policies for several companies.