Insurance is one of those things that is easy to pile up without noticing. A policy at the car dealer, another one bolted on to your phone contract, a renewal that rolls over every year without anyone checking it. Before long you can be paying for cover you do not need, or worse, missing the cover that really matters.
This guide sorts the most common types of insurance into what you must have, what many people choose to have and what is optional. Then we look at how to stop paying more than you should.
Insurance you must have by law
Car insurance is the big one. If you drive on public roads in the UK, you need at least third party cover. That pays out if you injure someone else or damage their property, but it does not cover your own car. If your vehicle is kept off the road and not insured, it needs to be declared off the road with a SORN. You can read the rules on GOV.UK.
There are three main levels of cover: third party only, third party fire and theft, and comprehensive. Do not assume the most basic level is the cheapest. Insurers price on risk, and comprehensive cover sometimes costs the same or even less, so get quotes for all three.
Cover that many people choose
Buildings insurance
If you own your home with a mortgage, your lender will almost certainly insist on buildings insurance. It covers the structure itself against things like fire, flood and subsidence. If you rent, the building is your landlord's responsibility. If you own a leasehold flat, it may already be arranged through the freeholder and paid for in your service charge, so check before you buy your own.
Contents insurance
Contents cover protects your belongings, from furniture to clothes. It is not compulsory, but think about how you would replace everything after a fire or burglary. Renters often skip it, yet a basic policy can be inexpensive compared with the cost of starting again.
Life insurance, if anyone relies on your income
Life insurance pays out if you die during the policy. If you have a partner, children or a mortgage that would be hard to cover without your income, this is the kind of situation it is designed for. Term insurance, which covers a set number of years, is usually much lower in cost than whole-of-life cover. Check your employer's benefits too, as some jobs include a death-in-service payment.
Cover that depends on your situation
- Income protection pays part of your income if illness or injury stops you working, usually after a waiting period. Whether it is relevant to you depends on your circumstances, for example whether you are self-employed or your employer only pays Statutory Sick Pay.
- Gadget insurance can overlap with cover you already have. Your contents policy may already cover phones and laptops away from home, or it may be possible to add that cover to an existing policy, so it is worth checking before buying a separate one.
- Pet insurance can save a huge vet bill, but policies vary a lot. Lifetime cover renews the money available each year, while time-limited and accident-only policies offer far less protection for long-term conditions.
How to avoid overpaying for insurance
- Check before you auto-renew. FCA rules stop home and car insurers charging you more to renew than they would charge a new customer for the same cover through the same channel. That does not make your renewal the best deal on the market, so it is worth comparing.
- Remove double cover. Packaged bank accounts sometimes include phone, travel or breakdown cover. Check before you buy it twice.
- Understand your excess. A higher voluntary excess can lower your premium, but it also means paying more yourself if you need to claim, so the amount you could actually afford matters.
- Compare monthly and yearly costs. Monthly instalments often cost more in total. Our guide to planning for yearly bills shows how to save up for the renewal.
- Be honest on every form. Getting a detail wrong, or naming yourself as the main driver of someone else's car, can lead to a claim being refused or a policy being cancelled.
Before you cancel anything
Cutting the wrong policy to save a few pounds a month can cost you far more later. Go through each one and ask what would happen if you had to cover that loss yourself. This article is general information, not financial advice. MoneyHelper's insurance guides explain each type in more detail, and if a claim is turned down unfairly you can complain to the insurer and then to the Financial Ombudsman Service. If money is tight because prices are rising, our guide to what rising prices mean for your budget has more ideas.
