Insurance made clear

Insurance is a way of protecting yourself and your belongings against a particular adverse event, such as a burglary, or losing your income because of illness.

If this happens, insurance will pay out an agreed amount, or an amount to cover the damage, as appropriate. Of course, it may not happen, but you have to decide whether you're willing or able to take that risk. If it does happen, you may have enough savings to be able to manage, but in case you don’t, insurance may help. Some insurance, like motor insurance, is compulsory – you have to have it if you own or use a motor vehicle.

In this section, we explain how insurance works, the main things you can insure, and things to think about to help you decide whether you need insurance. There are lots of different types of insurance available and it can be confusing. We can't tell you what to buy or where to buy it from, but we can help you think about your needs and ask the right questions. Alternatively, you can get a free copy of our Insurance booklet. You can download or order it online – see Free printed guides.

See Jargon made clear for an explanation of some key words and phrases you may come across.

• How insurance works
• Tips to help you take stock of your current situation
• Buying insurance
• What the FSA doesn't cover
• Get and give the full facts
• Cooling-off period

How insurance works

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.

Many types of insurance will have a minimum or maximum age that companies will insure from and to, so always check.

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.

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Tips to help you take stock of your current situation

Many of us live day to day without thinking about what we would do if the unexpected happened. But how would you or your family cope financially if you were to lose your job or become ill? Use the following checklist to take stock of your current situation and help you identify any areas where you feel you may need some or additional cover.

• Do you need insurance? Use our Budget planner to help you get a clear view of the money you've got coming in against all your outgoings. This will help you work out how you would cope if you had to pay for replacing items that were stolen or damaged, or how you would manage if you lost an income.
• What would happen if you or your partner became seriously ill or disabled? There are insurance products, sometimes known as protection insurance, that pay out in these instances but they usually only pay out a lump sum for a limited time and don't cover all illnesses. Always check the exclusions before you take out a policy. You can find out about some types of protection insurance in Income protection, Critical illness insurance and Payment protection insurance.
• What would happen if you or your partner died suddenly? Could you or your family manage without the income? Life insurance is about providing some financial security for people who depend on you if you died. It's also a good idea to check what your pension plans would pay out if you died. For more information see Life insurance.
• Are you a home owner? If your home was destroyed by a fire or flood you would still have your mortgage to pay. Most mortgage providers insist that you take out Buildings insurance with your mortgage but it's worth checking that the amount covered is enough to rebuild your house.
• What about your belongings? Whether you own your home or are renting, it’s your responsibility to cover your belongings. Contents insurance covers the loss of or damage to the contents of your home – for example, furniture, electrical items such as TVs, computers, radios, and smaller items like cameras, jewellery, briefcases and other items you carry outside of your home. Take time to work out the value of your belongings as it's all too easy to under-insure.
• What about health and dental treatment? If you think you may need health or medical treatment, or want to be seen more quickly than on the NHS, Health insurance may be worth considering.
• Do you own a car? The law insists that you have basic Motor insurance if you own or use a motor vehicle, but you may want to increase your cover, for example to replace a written-off car.
• Do you have pets? Animals can present you with nasty surprises in the way of vet's bills. Pet insurance can pay towards a vet's bills and some will pay for you to advertise if your pet has been lost; or for kennel/cattery fees if you suddenly have to go into hospital.
• Are you going on holiday? Travel insurance can cover you against mishaps while you're abroad, from lost luggage and theft to flight delays as well as medical bills. Make sure you read the policy summary for exclusions – there are bound to be some.

Before you take out any insurance always remember to check the details of the policy so you are sure it covers you for what you need it to.

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Buying insurance

Most insurance is not compulsory. It's up to you to decide what you may need cover for and you may want to get financial advice to help you do this.

Check what insurance you already have

• Check that it covers you for what you think it should – check the exclusions in the policy summary and make sure you've included any important information.
• Check the level of what is covered and tell the insurance company if your circumstances have changed, such as whether you've moved or you want to increase (or decrease) your cover.
• Check whether it covers you for more than you bought it for – contents insurance may cover you for losing credit cards while away from home or legal expenses cover may pay towards certain home-related legal disputes.

Things to think about before you buy

• Once you've decided that you want to buy insurance, get a few quotes from different companies. Make sure you compare like with like and don't buy on price alone – check what it covers and what's left out (the exclusions). If using comparison websites, bear in mind that none of these cover the entire market, and some larger insurers are not represented on any of the websites. Also, some websites may ask you fewer questions in order to speed up the process and instead will make a number of assumptions about you, so you must make sure that you check these are correct and update them where necessary – see Shopping around.
• Use the key policy information that companies will send you to shop around and compare policies' features and costs as well as the service you get from the insurance broker – see Getting help.
• Get financial advice if necessary. You can usually find mortgage, insurance or investment advisers on your high street, or your family or friends might recommend one. There are also a number of organisations that can give you a shortlist of financial advisers in your area – see Related links.

Some questions you can ask

• What will the policy cover me for?
• What won't it cover?
• What else do I need to know about this policy given my particular circumstances?
• Do I need to buy this insurance or am I already covered by an existing policy?
• Is there another insurance product that I should consider which better suits my needs?
• Could I get more or better coverage and will it cost me more?

Firms selling insurance

Firms selling insurance and those providing insurance cover (underwriting the risk) have to be regulated by the Financial Services Authority (FSA), the UK's financial services regulator, or be the agent of a regulated firm. Regulated firms and their agents are put on the FSA Register and have to meet certain standards. Always make sure that the firm you use is on the FSA Register before handing over your money. If they aren't regulated by the FSA, you won't have access to complaints and compensation procedures if things go wrong. To find out if a firm is on the FSA Register, see Check the FSA Register.

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What the FSA doesn't cover

The FSA regulates sales of most insurance products. However, its selling rules don’t currently cover the sale of extended warranties on non-motor goods (such as on electrical goods) where the person selling the insurance is also providing the goods.

Even where its rules don't cover the sale of a policy, they do cover the insurance company providing the policy, providing they are based in the UK and regulated by it – if so you will still receive a summary of the policy – see Getting help.

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Get and give the full facts

Insurance differs in what it covers and what it doesn't (the exclusions). Read the key policy information that the insurance company will give you to find out exactly what you're getting and use it to shop around and compare other policies – see Getting help.

Whatever type of insurance you decide to take out, always:

• ensure the firm is authorised by the FSA to sell insurance – see Check the FSA Register;
• disclose the full facts when applying for insurance – if you don't, you could invalidate your policy and the insurance company will not pay out in the event of a claim;
• read the key policy information for exclusions – to ensure that you choose the right policy for you;
• check for excess charges – some policies make you pay a certain ‘excess’ amount before they pay out on claims, and some policies charge an excess per clause rather than one overall; and
• shop around using the key policy documents to ensure you get the best deal for you. Some policies might be cheaper than others, but they may not offer the same level of protection.

What are the full facts?

‘Material’ facts are facts that you ought reasonably to know are relevant to the insurer’s decision whether to offer you insurance cover and at what price, so they must be disclosed. This information will form the basis of a contract between you and the insurer.

If you are asked a specific question, you must respond honestly, and it is no defence to say that you didn’t realise that the fact was material. If you don’t disclose material facts, your policy may be invalidated and you won’t be able to make a claim.

So make sure you disclose everything, however irrelevant it may seem at the time, for example any unspent convictions (however small) should be declared. And if you are buying home insurance, you need to declare any (unspent) convictions of anyone in the household too. See Related links for more information on what you should tell them.

Check with your insurer if and when you need to tell them of changes in circumstances.

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Cooling-off period

You have the right to change your mind and have your money back within a certain period (usually 30 days for life, income protection or critical illness insurance, and 14 days for other general insurance products) after arranging any insurance contract.

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Income protection

Income protection insurance (also called permanent health insurance) can pay out a tax-free income after the statutory sick period ends.

What it does

It replaces part of your income (tax free) if you are unable to work for a long period of time because of illness or disability, and will continue to pay out until you can return to some kind of paid work or reach retirement, whichever is sooner.

It has a waiting period before it will start to pay out. The longer you agree you'll wait, the lower your premiums will be, so it is important you find out what income you can get from your employer, and other insurance (such as mortgage payment protection insurance) in the event of illness or disability.

This cover might not be available to you if you have existing health problems or a dangerous job.

Key things to think about

If you are an employee and you fall ill, your employer might pay you your full pay for a few weeks or months. By law, an employer must pay most employees statutory sick pay for up to 28 weeks, though this will probably be a lot less than your full earnings. After that, you would probably have to rely on State benefits.

However, some employers arrange group income protection insurance for their employees as a perk of their job, which can pay out an income after the statutory sick period. So check what you are entitled to.

If you are self-employed, you won't have this option.

State benefits are not generous. You would probably see a substantial drop in your income if you were out of work for more than a few months because of illness or disability.

Insurance aims to put you back to the position you were in before you suffered a loss. But it does not allow you to make a profit out of your misfortune. So the maximum amount of income you can replace through insurance is broadly the after-tax earnings you have lost less an adjustment for State benefits you can claim. This usually translates into a maximum of, say 50% to 65% of your before-tax earnings.

Example of working out how much cover you might need

Sue is single and earns £26,000 a year before tax and other deductions. She estimates that, if she was ill for a long time, her budget would be affected as shown in the table below.

Sue reckons she would need around £13,000 a year to maintain her lifestyle. This is half her before-tax pay of £26,000.

Sue also works out that as a perk of her job, her employer will pay her half a salary for 52 weeks after the statutory sick pay period of 28 weeks. She therefore arranges for her policy to pay out after 80 weeks of incapacity (see waiting period below).

More details on how protection insurance works are set out below:

Cost

You pay a monthly premium throughout the term of the policy. Cost depends mainly on:

• Your age – at the time you start the policy. Older people are more likely to suffer an illness, so pay more.
• Your sex – gender can have an affect on the premium you pay.
• Your health – at the time you start the policy. If you have existing health problems you might be refused cover or have to pay more.
• Your job – some jobs are more likely than others to contribute towards illness. For example, a bank clerk is deemed to have a very safe job but a deep sea diver runs high risks and so would have to pay more.
• Hobbies and lifestyle – for example, smoking makes you more likely to become ill, so you'll pay more.
• Waiting period – once you claim, there is a delay before payments start. You can choose how long this is, for example from 4 weeks up to 104 weeks. The longer the waiting period, the less you pay.

Access

• If your health is poor or your lifestyle is considered risky, you may be refused cover or have to pay more than normal.

Terms

• Check whether you already have protection in place in case you get incapacitated, and for how long that protection would last. For example your employer may have an income protection scheme in place you can benefit from, or you may have a payment protection insurance that covers your mortgage.
• Check whether the policy reduces what it pays out if you receive state benefits or claim money under any other insurance policy.
• Some policies only pay out if you can't do any work, but you would have to be seriously incapacitated for you not to be able to work at all. Others cover being unable to do any work for which you are suited. The best pay out simply if you can't do your normal job, but premiums tend to be more expensive.
• Most policies would pay out until your reach age 65 or when you have chosen the cover to end.
• Check how different occupations are treated. Different insurers put the same job in different risk categories.
• Does the cover increase in line with inflation?

Some advisers suggest that critical illness insurance – which pays out if you are diagnosed with a life-threatening condition listed in the policy – is a cheaper and simpler alternative to income protection insurance. But there are lots of common situations when critical illness insurance would not pay out, for example if you had back problems or a stress-related illness. Additionally, not all occurrences of the critical illnesses listed are covered, for example some early stages of cancer are not covered. For more information on this see Critical illness insurance.

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Life insurance

Life insurance is about providing some financial security for people who depend on you financially. There are different types depending on your circumstances.

What it does

Life insurance will pay out a lump sum or fixed regular income either when you die (if a whole of life policy) or if you die within a specified term (term insurance). Some whole-of-life policies also contain an investment element to them, but such investment-type policies cost a lot more than protection-only insurance.

If you want investments, consider the full range of products (not just life insurance) which might meet your circumstances and needs – see the Investments section of this site.

Term insurance (or assurance)
This is the simplest and cheapest type of life insurance, and is known as term insurance because you choose how long you're covered for, say, 10, 15, or 20 years (the term).

It only pays out if you die within the term you've agreed. If you live longer than the term, you get nothing. As a couple, you can also take out term cover in both your names, with the policy paying out on the first death only during the term.

There are different types of policy you can have:

• family income benefit (a policy which pays out income rather than a lump sum);
• increasing policy (where cover and premium rise over the years);
• decreasing policy (where cover and premium fall over the years); or
• renewable policy (which lets you extend the original term).

Decreasing term insurance is often linked to a repayment mortgage (where the amount you owe decreases over time) and may, in this instance, be called mortgage term insurance or mortgage protection life insurance.

The premiums you pay are usually fixed for the whole term. There are also contracts where premiums are reviewable after a certain period, usually five years.

Whole-of-life insurance
Whole-of-life insurance pays out an agreed sum when you die, whenever that is, as long as you are still paying the premiums.

Cost

Whole of life policies will cost more than term insurance policies, partly because they will pay out whenever you die, but also because of the various charges that come with them. The cost of either type depends mainly of the likelihood of the insurer having to pay out – so if you're a smoker and do a dangerous job, you'll pay more than a non-smoking office worker. Life insurance also costs more for men because, on average, they don't live as long as women.

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.

Key things to think about

• Check for exclusions – in other words when the policy won't pay out. For example, most do not cover death due to alcohol or drug abuse. You might not be covered while taking part in risky sports. If your health is poor when the policy starts, some causes of death might be excluded or you might be refused cover altogether.
• How flexible is the contract? Can you reduce or increase cover easily as your circumstances change? Are there extra charges for doing this? Does cover stop immediately if you miss a payment or is there a period of grace?
• By paying extra, you can usually include a waiver of premium. It pays the premiums if you can't work because of a long-term illness so that your cover is not interrupted.
• If you want to change insurer, check the level of premiums for the new contract before switching (premiums may have gone up because of older age or because you have developed medical conditions). Also check the new level of cover compared to the previous one. Different benefits may be available, and different exclusions may be applied, for example you may not be covered for medical conditions that have developed before the switch even if these were covered under the previous contract. If you do decide to change, make sure you do not cancel your original cover until you are fully covered by the new contract.
• The policy can be set up under trust. This means that in the event of death, proceeds of the policy are paid directly to dependant(s) of your choice. Provided a trust is set up properly, there may be benefits to doing this. However, using a trust may not be suitable for everyone and because of the complexities we recommend you seek financial and legal advice. For more information see Getting help with money decisions.

Pension Term Assurance

What it does
Stand-alone Pension Term Assurance (PTA) is term insurance which uses the rules for pension schemes to provide life cover. Despite the name, this does not have to form part of your pension. It pays out on your death rather than giving you an income in retirement. PTA won't necessarily be called pension term assurance; firms can use their own marketing names for it, so make sure you read the policy documents and understand what you're buying.

Changes to the tax rules in 2007 means that stand-alone PTA no longer has a tax advantage over ordinary term insurance products. However, if you already have a PTA policy that gets tax relief you will not be affected. If you are considering PTA, you should also look at ordinary term insurance and decide which product best meets your needs.

If you have an existing policy where you can increase your cover by paying higher premiums, you will still get tax relief on those increased premiums. However, if your policy doesn't include this option, you won't be able to increase cover and get tax relief on higher premiums.

Key things to think about

• Make sure you don't lose out by switching. Your current policy may include cover options which are not offered under the new policy you are considering.
• Remember that PTA policies in force before 31 July 2007 will still get tax relief on the premiums. Switching to an ordinary term insurance policy will mean you lose this advantage. It also means that new PTA policies no longer have a tax advantage over ordinary term insurance policies.
• Don't cancel your current policy until you are sure you have another policy in place – you could leave yourself uninsured.
• If your health has deteriorated since taking out your existing policy, this may mean that the premiums for a new policy are more expensive and you might be better off not switching.

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Critical illness insurance

Critical illness insurance may be right for you if you have ongoing financial commitments, such a mortgage payments, to make.

What it does

Critical illness insurance is a long-term insurance policy designed to pay a lump sum or income on the diagnosis of certain life-threatening or debilitating (but not fatal) conditions such as a heart attack, stroke, certain types/stages of cancer, multiple sclerosis and loss of limbs.

The illnesses covered will be specified in the policy along with any exclusions and limitations – these differ between insurers. Critical illness policies usually only pay out once, so are not a replacement for income. You can use the payout to pay for medical treatment, pay off your mortgage or anything else.

When you might buy it

Many people buy critical illness insurance when they take on a major commitment such as a mortgage. This is something you can discuss with a mortgage adviser.

Otherwise, you can buy it:

• through a financial adviser who advises on critical illness insurance, taking account of your wider financial circumstances; or
• directly from insurance companies.

Not all firms will give you advice about whether it is suitable for you. They should tell you whether they will be offering advice and recommending a policy, or giving you information only. If they only give information, you will need to consider the information they give you and make your own decision as to whether the product is right for your needs, or seek independent financial advice.

Key things to think about

Before you take out cover, here are some things to consider:

• Critical illness insurance pays out if you are diagnosed as suffering from one of the specified illnesses.
• Policy summaries will often set out a list of illnesses covered, but this is only a guide and full details will be in the policy document. This will also set out the criteria that have to be met before the insurer will pay a claim, including defining the level of severity of the illness.
• As an example, in the case of cancer, not all cancers or stages of cancer are covered. And for heart attacks, the insurer will need to have medical evidence of the severity of the condition before paying a claim. So make sure you check which illnesses are covered.
• It does not cover simply any sickness that affects your ability to work – it is specific about which illnesses are covered.
• Some insurers exclude all pre-existing conditions but others will decide on the basis of your personal medical history.
• It differs to other types of protection insurance such as income protection or payment protection, so make sure you understand what it does and whether it is right for you.
• Before you take out the cover, the firm should give you either a Policy Summary or Key Features document. This will set out the key features and benefits, as well as any significant or unusual exclusions or limitations. If you have any queries about these you should ask the salesperson to explain the cover in more detail. This will help you make an informed decision on whether to take out the cover.
• Many insurers now provide a plain English guide to the illnesses covered. Ask the salesperson if they have one that explains the policy they have recommended.
• If the insurer imposes any other conditions, perhaps because of your own or family medical history, you should be told what they are before you take out the policy.
• Detailed policy terms and conditions will be provided in the policy document the insurer will send you after you take out the cover – make sure you read it so that you know what you're covered for.

Taking out critical illness insurance

• It's essential that you give full, honest answers to questions you are asked about both your own and family medical history. Giving incomplete or wrong information could invalidate your policy and any claim you make on it.
• If you are not sure, it is better to mention things. Otherwise you will not be aware of what the policy may or may not pay out until you make a claim.
• Many insurers will allow you to send medical information directly to their Medical Officer, so if you do not want to discuss personal or sensitive information with the sales adviser, ask about this.
• Bear in mind that the premium the salesperson quotes to you is only an estimate. The insurer will confirm the actual premium, and the terms, after it has considered your medical history.
• Make sure you understand what the policy covers, when it will pay out and when it will not.
• Read the documents you are given and ask questions if you don't understand anything.

Cost

• The premiums are typically cheaper the younger you are, but will also depend on your medical history and that of your close family. Some policies may offer to reduce the premium if they exclude a pre-existing condition, such as cancer, while some do not offer reduced premiums for exclusions.
• Some policies will cover more illnesses than others or may offer different benefits, such as waiver of premiums, which may make it more expensive.
• Some policies may be combined with life cover, which may make the critical illness element cheaper.
• Some policies may give you the option of reviewable or guaranteed premiums. Guaranteed premiums are more expensive, but you know payments will remain level throughout the life of the policy. Reviewable premiums may be lower, but prices could rise if, for example, new screening methods result in more claims.

Changing your mortgage and increasing the cover

If you already have critical illness insurance you should think carefully before you cancel your existing policy and take out a new one. You might find that by replacing a policy you lose some of the benefits if you have developed any illnesses since you took out the first policy. This is because, pre-existing conditions may not be covered under the new policy. You may be able to get cheaper cover if you switch to another company but the cover might not meet all of your needs.

So think very carefully before you replace or switch your policy.

Some policies allow you to increase your cover – particularly after lifestyle changes such as marriage, moving home or having children. Ask your insurance company or financial adviser for information.

If you cannot increase the cover under your existing policy you could consider taking out an additional policy just to 'top up' your existing cover.

Cancellation

You can cancel within 30 days of taking out the policy and get your money back – provided you have not made a claim. After the first 30 days, you can still cancel the policy at any time under most contracts, but you may not be entitled to a refund of the premiums you have paid. Your cancellation rights should also be set out in the key policy information.

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Payment protection insurance

Payment protection insurance can cover your monthly loan repayments if your salary drops due to accident, sickness or unemployment, for a fixed period of time.

What it does

Payment protection insurance (PPI) will pay out a sum of money to help cover your monthly repayments on mortgages, loans, credit/store cards or catalogue shopping payments if you make a claim. This could be because you have an accident or sickness, or become unemployed through no fault of your own, or if you die.

This means that the insurance company will pay the monthly repayments (or a percentage of them) on your behalf for a fixed period of time if you make a claim. It is sometimes known as ASU (accident, sickness and unemployment) insurance, Account Cover or Payment Cover.

PPI is not the only product designed to protect against loss of income, and may not always be the most appropriate. Although PPI can provide worthwhile cover against unexpected changes in your personal circumstances, you should bear in mind its limitations and exclusions, and possible alternative products (such as income protection).

How it covers you

This will vary depending on the sort of repayments the policy is designed to protect, and on the terms of the particular policy.

The following benefits are typical for different types of PPI cover:

• Mortgage – it covers your monthly mortgage repayments for a set period of time. The maximum number of monthly repayments that the insurance company will make is usually 12, but it can sometimes be 24. This means that after this period you will have to pay your monthly mortgage repayments yourself.
• Credit and store cards – it generally pays off a percentage of your outstanding balance or the minimum payment each month for up to a year. Check which option is being offered. This means that you may still have to pay any balance left after this time. The insurance typically only provides cover for the amount you owe when you make a claim, and not any balance you build up after this.
• Loans – it covers your monthly repayments for the loan – generally for 12 or 24 months. After this period you will have to pay your monthly loan repayments yourself.

If the insurance for any of these products contains life insurance, then the cover will generally pay off the balance of the debt covered if you die. If the claim is for disability, the monthly repayments may be paid to the end of the life of the loan.

You should read the key policy information that come with any policy you take out. This sets out, amongst other things, the main features and benefits of the policy as well as any significant or unusual exclusions and how long the cover lasts. If unclear ask the salesperson to go through it with you and make sure you're happy before you take it out.

The main features

All policies are different, so always shop around and double check with the provider selling the product whether it includes the features you need it to. PPI is almost always optional – you should not normally be refused a loan if you decide not to buy it. If in doubt, ask your provider whether it is optional.

• PPI only pays out for a set period of time, usually 12 months.
• Many policies will not pay out for the first couple of months after you have made a claim and some may not backdate any payments. This may mean you need to consider how to cover these repayments before the policy starts paying them.
• To claim on the unemployment part of the policy typically you must have been employed continuously by the same company for the last 12 months on a permanent contract.
• The policy may not cover you if you are self-employed, so make sure you check.
• You may not be able to make a claim for an illness you already have or have had before. Make sure you check this before you take out the policy. This will be called a pre-existing medical condition and can include any medical conditions you have, even if they haven't troubled you for a while.
• Stress or back complaints, and possibly other conditions, may not be covered, even if you can't work because of them. Again, it's worth checking before you take out the policy.

Before you take out cover, the firm should give you a Policy Summary. This should set out the key features and benefits, as well as any significant or unusual exclusions or limitations. If you have any queries about these, you should ask the salesperson to explain the cover in more detail. This will help you make an informed decision on whether to take out cover. For example one of the significant limitations in some policies is the ability of firms to increase the amount of premium payable and reduce the amount of cover by giving you notice.

Like all insurance, PPI policies will generally include a number of exclusions or conditions that will prevent you from claiming on the policy, for example if you are employed on a temporary or contract basis or you are aware you may become unemployed. Make sure you understand which illnesses are not covered.

Also, you may not be eligible to take out a policy in the first place – say, if you:

• are under 18 or over 65;
• do not reside in the UK; or
• work less than 16 hours a week.

If in any doubt, ask the salesperson to explain any parts of the policy that you may not be able to claim on (the exclusions and eligibility conditions). Be sure you understand the exclusions before you buy the insurance.

When to buy it

You're likely to be offered PPI by the company when you take out a mortgage or other loan or credit agreement, but you don't have to buy it from them. You can:

• buy it yourself separately from insurance brokers, including over the internet;
• shop around to get the best deal for you; and
• compare the features and costs of PPI products using our impartial Comparison tables.

PPI is useful, but you may not always want it or be able to claim on it when you need to.

Costs

Remember, interest rates and APRs for loans, mortgages and credit/store cards do not usually include the cost of the PPI policy, so comparing interest rates on their own will not be helpful if you are taking out PPI.

The salesperson must tell you how much the insurance will cost you separately from the cost of the loan, over the life of the policy. They must also tell you whether buying the policy is compulsory. You can pay by a single upfront premium, or regular monthly premiums. The single premium can be added to your loan, thereby increasing what you borrow. A regular premium is a set amount you pay each month.

The salesperson should quote you a monthly figure for the PPI and the total premium for the lifetime of the policy, whether they're quoting for a single or regular premium. If you take out a single premium bear in mind that, as it's normally added to your loan, you're being charged interest on that as well. A regular premium may be cheaper because you will not be charged interest. If in doubt, ask the salesperson to clarify what sort of premium they are quoting for.

Key things to think about

• Think carefully about the risks you could face while paying back a loan, mortgage or credit/store card and whether taking out PPI or another product (such as income protection) would be to your advantage. If you had an accident that stopped you from working, would you have enough money from other sources to be able to continue paying off the loan?
• Consider whether you have other insurance which already covers you (such as sick pay or death-in-service benefit through your employer), or whether other types of protection insurance may be more appropriate.
• Don't be pressured into buying it. It is very rare that you have to take out PPI to get a loan and you definitely don't have to buy it from the same place you get your loan from.
• Check the total amount of benefit you may receive from the policy, compared to the cost of the cover over the duration of the loan. This may help you decide whether PPI covers what you need it to cover.
• Check online forms when applying for loan or credit online. Although many firms have agreed not to do this, PPI may have been selected by default, and you will need to change this option if you don't want to buy it. You should also print out or keep copies of completed forms in case you need to complain or make a claim in the future. If you bought PPI in this way but didn't ask for it you should first complain to the firm that sold you the policy, to give them a chance to put things right. If you're not happy with the outcome you may be able to take the complaint to the Financial Ombudsman Service – see If things go wrong.
• Find out whether the firm is giving you advice; if not, consider whether you need advice. Getting advice means that the firm should recommend a PPI or other policy that meets your needs – see Getting help with money decisions.
• Find out whether the policy is a single or regular premium. If you buy a single premium policy you pay a lump sum of 3-5 years' worth of premiums in advance. This amount is added to the sum you borrow and attracts interest, so you'll be paying more over the long run.
• Check if the PPI cover lasts the length of the loan. Some policies do not always last as long as the term of the loan. For example you may have a 25 year loan but the PPI policy may only cover you for the first 5 years. Think about how you will protect repayments after the policy ends, but whilst you are still paying back the loan.
• Check if you would have to continue to pay for cover if you take it out at the same time as a loan but you repay the loan early.
• Think about what you would do if the claims payments stop (usually after 12 months) and you are still unable to work. How would you pay the rest of your loan?
• Check to see what you will be covered for and what won't be covered – for example any exclusions or limitations relating to the nature of your employment or your medical history.
• Check whether payments from a PPI policy would affect the benefits that could be paid from other protection insurance that you already have.
• Check what you will get back if you cancel the policy or repay the loan early.
• Shop around and compare the features and costs of PPI products using our impartial Comparison tables.

Ask the salesperson to explain the terms and conditions of the policy and make sure you read the key policy information – especially the exclusions.

Cancellation

You can cancel the policy within 30 days of taking it out, depending on the terms of the policy, and get a full refund of any money paid.

If you have a single premium policy and you cancel after this initial cancellation period, you will usually find the refund you get is not in proportion to the remaining policy term. So you could get less back than you might expect. Check with the salesperson or in the policy documents what refund you would get and how it would be calculated.

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Complaints

The Financial Services Authority (FSA), the UK's financial services regulator, has proposed a package of measures to reform the PPI market and protect consumers. The package will ensure customers are treated better when buying PPI and more fairly when complaining about it. Firms have to put these measures in place by 1 December 2010. For more information, see its website.

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Health insurance

There are many different insurance products aimed at helping you soften the financial blow of medical expenses you may have to incur.

Some offer access to private care treatment (private medical insurance), and some pay a limited amount towards everyday medical bills (health cash plans).

Your employer may offer some of these in your benefits package or you can take them out yourself.

In this section we cover the following:

• private medical insurance;
• health cash plan; and
• dental insurance.

Private medical insurance

What it does
Every UK resident is entitled to free healthcare from the NHS, but you may consider buying health insurance so that you can have a choice in the level of care you get. You don't have to take out health insurance but think about how you'd be able to afford medical treatment if you didn't want to use the NHS.

Like all insurance the cover you get varies – but basic private medical insurance may pick up the costs of most in-patient treatments (tests and surgery) and day-care surgery, and some extend to out-patient treatments (such as specialists and consultants).

Cover can be purchased on a full medical underwriting basis, which means you will be asked a number of questions about your health and, based on the information you provide, the insurer will decide the conditions of your cover. You can also apply for cover on a moratorium basis, which means you will not be asked any questions about your health, but if you have suffered from any health conditions in the last five years, these will automatically be excluded from cover initially.

What isn't covered

• You can't take out cover now for treatment you know you're going to need.
• If you've had health problems in the past (pre-existing conditions), your insurer may also exclude those conditions from your cover. If you are asked to disclose these when applying for the insurance you must do so, or you could invalidate your policy, which means the insurance company won't pay out if you make a claim.
• It does not cover the treatment of chronic medical conditions. There are various definitions of chronic conditions depending on the policy, but broadly it is a long-term medical condition which is likely to continue to need regular or periodic treatment.
• Some exclude certain types of treatments such as out-patient treatments, routine treatments (such as health checks), dental care or experimental treatments.
• Most also exclude routine pregnancy, HIV/AIDS, fertility treatment, mental or psychiatric conditions, and elective treatments you may choose to have, such as cosmetic surgery.

Keeping costs down
Shop around – it's a competitive market out there and both cover and costs vary from company to company. Many policies have a standard excess charge which means you agree to pay the first part of any claim, for example the first £50 or £100. If you agree to pay a higher excess you might get a cheaper policy. Or you could choose cover that only kicks in if NHS services are not available within a certain timeframe.

Be clear about what you need. You may not want the highest level of cover. Always compare what's covered by a policy, not just the price. Some may be cheaper than others, but they may not offer the same level of protection.

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Health cash plan

What it does
A health cash plan provides limited cash sums towards everyday healthcare bills. Different policies cover one or a combination of healthcare such as dental care, optical care, physiotherapy, or stays in hospital.

So for example a policy will pay out a maximum of £100 per year towards optical care bills you have incurred, and £10 for each night you need stay in hospital (up to a maximum of say 16 nights). Most providers offer a range of covers with different levels of payouts, and the smaller the payouts the cheaper the premiums.

What isn't covered
Some policies have age restrictions and will only cover you if you are under a certain age (often 65). If you've had health problems in the past (pre-existing conditions), the cash plan may not pay out on certain types of healthcare. Some plans also apply qualifying periods which means that they will not pay out towards any treatment undergone in the first few months of the policy, so shop around and make sure you get the cover you need.

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Dental insurance

What it does
Dental insurance is a type of health cash plan that focuses on dental care. Most of these pay for treatments such as crowns, root canal work, bridges and dentures up to an agreed maximum each year. If your teeth are in good health you can also take out a capitation scheme: you pay a monthly fee in return for check-ups, regular treatment, X-rays and extractions.

What isn't covered
Check your plan carefully. More serious work such as oral cancer, surgery and serious dental abscesses are often excluded. Some plans apply qualifying periods which means that they will not pay out towards any treatment undergone in the first few months of the policy, so shop around and make sure you get the cover you need.

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Top tips

1. Read the paperwork and ask questions if you don't understand anything.
2. Make sure you check what you're covered or not covered for.
3. Tell the insurance company if you have any existing medical conditions.
4. Find out if your employer provides health insurance as part of your benefits package.

Home insurance

There is insurance to protect your home and its contents, for example:

• buildings insurance;
• flood damage insurance; and
• contents insurance.

Buildings insurance

What it does
It usually pays out if your property is destroyed by fire, floods or subsidence (although you will need to check if you live on a flood plain, for example). Damage to fixed fittings such as baths and kitchens are often included, as well as sheds, greenhouses and garages.

You might be offered buildings insurance when you take out your mortgage, but you don't have to take what's on offer. Use the key policy information to shop around and get the best deal for you.

If you purchase a leasehold property (such as a flat in a block of flats) the freeholder may have arranged buildings insurance for the whole block, in which case you may not need your own buildings policy.

What's covered
Your cover is based on what your home would cost to rebuild. You can check whether you have enough buildings insurance through the Building Cost Information Service (BCIS) website. It has an online tool to help you calculate the sum you should insure your building(s) for, in case your home has to be entirely rebuilt.

You need to tell your insurer if you extend your property, for example with a loft conversion or conservatory. Your belongings are not covered – these need to be covered separately with Contents insurance.

Keeping costs down
As always, shop around. You may also find that you get a better deal if you buy buildings and contents insurance together. Most policies have a standard excess charge which means you agree to pay the first part of any claim, for example the first £50 or £100. If you agree to pay a higher excess you might get a cheaper policy. Always compare what's covered by a policy, not just the price – the key policy information will help you do this. Some might be cheaper than others, but they may not offer the same level of protection.

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Flood damage insurance

What it does
Although flood damage may be covered under your buildings insurance, if you live in a high-risk area, you may want to consider taking out stand-alone flood insurance as well.

The Environment Agency have created a Flood Map (see Related links) which gives a national assessment of the likelihood of flooding. This information is used by insurers as a basis to working out premiums.

The Flood Map shows the likelihood of land being flooded, not individual properties. Even if your own home is not affected (for example you live in a third-floor flat) the local area could be – your car could be washed away, you may not be able to get into or out of your home, and your power, gas or water supplies may be interrupted.

What isn't covered
Insurance cover against flooding is generally available for the vast majority of properties in the UK. However, insurers cannot guarantee to provide cover in all circumstances.

Clicking on your area on the Flood Map will tell you if the likelihood of your area flooding is classed by the Environment Agency’s National Flood Risk Assessment as ‘Low’, ‘Moderate’ or ‘Significant’. If you live in an area classed as ‘Low’ or ‘Moderate’, then any insurer who is a member of the Association of British Insurers (ABI) will offer flood cover in the normal way on buildings and contents policies. This applies to both existing policyholders and new customers.

In areas where the likelihood of flooding is ‘Significant’, cover may depend on various issues, including what improvements are in place for permanent flood defences. However, insurers who are ABI members will endeavour to work with policyholders to continue or provide cover.

In all cases, insurance terms are set by the insurer and will reflect differing degrees of risk. There may be reasons that are not related to flood risk which mean that an insurer may choose not to offer insurance.

Keeping costs down
Insurers will generally take account of measures you have taken to reduce flood risk, such as removable household flood products, but they may want you to provide a report from an independent professional who is experienced in carrying out flood risk mitigation surveys.

The ABI and the Environment Agency have several useful guides and reports on flood insurance and flood damage – see Related links.

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Contents insurance

What it does
It covers the loss of or damage to the contents of your home, including your furniture, electrical goods and other items within your home, and also items you take outside, for example cameras, jewellery and briefcases. Different policies offer different levels of cover but generally you'll be covered against theft and fire, and have the option to insure against damage you may cause by accident.

If not already covered by your contents insurance, you may want to consider travel insurance for loss or damage to your personal belongings whilst travelling. For more information see Travel insurance.

What's covered
Some companies have limits on the value of any one item under the general policy so you'll need to specify individual items such as expensive jewellery or camera equipment, for example. Your cover may also be affected or cancelled if you leave your home empty for a long period of time, or if you let it out. Damage to the building itself is also not covered; this needs to be covered separately with Buildings insurance.

Keeping costs down
Many insurers will offer discounts if you have a burglar alarm or window locks or if you're a member of a Neighbourhood Watch scheme. You may also get a deal if you combine contents and buildings insurance.

Most policies have a standard excess charge, which means you agree to pay the first part of any claim, for example the first £50 or £100. If you agree to pay a higher excess you might get a cheaper policy.

Always compare what's covered by a policy, not just the price – the key policy information will help you do this. Some might be cheaper than others, but they may not offer the same level of protection.

Level of cover
Some contents insurance policies offer new for old. This means they'll replace old damaged appliances and possessions with new ones when you claim.

Bear in mind that your premiums may increase the following year, or the insurance company may refuse to cover you for the same risk if it happens more than twice, for example.

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Top tips

1. Read the paperwork and ask questions if you don't understand anything.
2. Make sure you check what you're covered or not covered for.
3. Shop around when it comes to renewal time to make sure you're getting the best deal.

Motor insurance

The law says you must have basic motor insurance if you own or drive a motor vehicle. You can also choose to have a higher level of cover.

What it does

Some policies cover the replacement or repair of your vehicle, depending on the circumstances of an accident. You can choose from three levels of cover:

• Third party – this is the minimum legal requirement and covers you if you injure a third party, including passengers or their property, but does not cover damage to your own vehicle.
• Third party, fire and theft – covers third party injuries and liabilities, and also fire and theft to your own vehicle, but not accidental damage to your vehicle.
• Comprehensive – as well as the above, this will cover fire, theft and accidental damage to your vehicle.

Costs

You pay a premium depending on factors including the make of car, engine size, your age and your sex.

You'll also tend to get lower premiums if you park your car in a garage overnight for example, or if you have a clean driving licence.

For more information on the different factors involved in working out premiums, and for answers to frequently asked questions on motor insurance, see the Association of British Insurers (ABI) website.

Keeping costs down

Shop around – there are lots of insurers out there. Use the key policy information to see what is and isn't covered by the policy. Always compare what's covered by a policy, not just the price – these documents will help you do this. Some might be cheaper than others, but they may not offer the same level of protection.

Most policies have a standard excess charge which means you agree to pay the first part of any claim, for example the first £50 or £100. If you agree to pay a higher excess you might get a cheaper policy.

Depending on your claims history, the insurance company may offer you a no-claims discount. Generally this ranges from 30% to 65% and your premium will reduce accordingly.

Some companies allow you to pay a sum to protect or guarantee this no-claims discount, which can mean a saving on your future premiums should you have to make a claim. Bear in mind you are paying to keep the no claims discount and not to keep your premiums at a certain level – they may still rise, for example, as a result of general increases or as a result of your claim.

Fronting
Insurance fronting is when someone other than the main driver of a car is named as the policyholder. For example a parent insuring a car and declaring themselves as the main driver when in fact the car is mostly driven by their son or daughter. While it may be tempting to try to reduce the costs of insurance by doing this, it is illegal and could invalidate the policy. The insurance company can refuse to pay out on the claim, cancel the policy, and even prosecute the policyholder or driver for fraud.

For more information on fronting as well as some tips on ways to help cut the premiums for young drivers in particular, see our What about money? website.

Top tips

1. Read the paperwork and ask questions if you don't understand anything.
2. Make sure you check what you're covered or not covered for.
3. Shop around when it comes to renewal time to make sure you're getting the best deal.

Travel insurance

Travel insurance can pay for lost luggage and other valuables, as well as accidents or emergency medical bills. Always check what is and isn’t covered.

What it does

If you travel without travel insurance, you run the risk of losing out if things go wrong. With about a third of recorded claims involving medical bills, this is by far the most common travel insurance claim. Other common claims are for lost or stolen baggage, cancellation of flights, lost or stolen money, and travel delay.

If you are a UK resident you are entitled to free or reduced-cost, State-provided healthcare when visiting a European Union (EU) country as long as you have the necessary European Health Insurance Card (EHIC). In many other countries, outside the EU, healthcare can be very expensive. But you should remember that the EHIC is not a substitute for travel insurance, as it only covers you for when you are ill.

Most travel insurance plans will cover medical bills for £1m, and often more, as well as pay for an emergency air ambulance to bring you home for treatment in the UK. Travel insurance can also cover you against other mishaps while you're abroad, from theft to flight delays. Most policies have a standard excess charge which means you agree to pay the first part of any claim, for example the first £50 or £100. If you agree to pay a higher excess you might get a cheaper policy. But beware – some policies charge an excess per clause rather than one overall.

You could be offered travel insurance by the travel agent where you book your holiday. Or you may find that when booking your flights, the airline has automatically added travel insurance for you. You don't have to take the insurance offered – you can opt out of it and use your own if you already have it or buy it separately. If you do decide to take the insurance offered, make sure you find out what's covered and what isn't by reading the key policy information. Make sure you get one that's right for you.

Find out whether your employer offers travel insurance as part of your benefits package. You may have some kind of ‘free’ travel insurance through your credit card or bank. However, check what it covers, as it may only cover certain things and only up to a certain amount.

What isn't covered

Make sure you read the policy summary to see what is and isn’t covered by the policy – there are bound to be some areas excluded from cover. For example, some policies do not cover scheduled airline failures, civil unrest, terrorist attacks or widespread disruption to flights caused by closure of airspace or airports due to unexpected events such as the volcanic activity in Spring 2010. If you have a policy which doesn’t cover these risks, you may be able to take out separate insurance.

You won't usually be covered for medical conditions you already have, or may have to pay extra to get them covered. If you don’t disclose those medical conditions, any claims that you make may be rejected because you didn’t tell the insurance company about them. If relevant, you should also check whether your policy covers cancelling your holiday when a relative or friend falls ill, and whether you need to keep your insurance company informed about ill relatives/friends. Always ask if you're in doubt. Travelling against a doctor's advice may also invalidate your insurance cover.

The number of confirmed cases of swine flu (H1N1) across the world continues to grow. You should check your insurance policy documents carefully to make sure you understand what you are covered for, the level of cover and any limitations that apply. You should also make sure that you have the supporting documentation to make a claim (such as your unique ID number generated by the National Flu Service, together with the label on your anti-flu drugs as proof of diagnosis to validate a travel insurance claim). For more information see the Foreign & Commonwealth Office's swine flu page [ http://www.fco.gov.uk/en/travelling-and-living-overseas/swine-flu ].

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Costs

You pay a premium depending on various factors, such as age, pre-existing medical conditions and where you are travelling to. Gender is not a factor in calculating premiums.

For more information on the different factors involved in working out premiums, and for answers to frequently asked questions on travel insurance, see the Association of British Insurers (ABI) website.

Top tips

1. Read the paperwork and ask questions if you don't understand anything.
2. Make sure you check what you're covered or not covered for.
3. Tell the insurance company if you have any existing medical conditions.
4. Find out if your employer provides health insurance as part of your benefits package.
5. Don't be pressurised to take travel insurance from your travel agent – you don't have to, and other policies may be more suitable for you.

Pet insurance

You can protect yourself against vet bills with two different types of insurance. Find out what is and isn’t covered, and how to keep costs down.

What it does

There are two kinds of pet insurance:

• Life-long – it will pay out for specific conditions for the life of your pet; and
• Time-limited – it will only pay out for a maximum of 12 months per condition.

In both cases the cover only continues provided you keep paying the premiums.

Policies vary, but in addition to an agreed maximum payout for a vet's bills and drugs, some will pay for you to advertise if your pet has been lost; or for kennel/cattery fees if you suddenly have to go into hospital; and, in some cases, the cost of making good damage caused by your pet.

What isn't covered

Generally, the routine maintenance items such as annual vaccinations, boosters and nail clipping, as well as spaying and neutering are not covered.

Costs

The cost of pet insurance varies – for example it is usually more expensive for dogs than cats, and for older pets rather than younger pets, and even where you live can affect the cost because of the varying cost of vet’s fees.

Most policies have a standard excess charge which means you agree to pay the first part of any claim, for example the first £50 or £100. If you agree to pay a higher excess you might get a cheaper policy. Make sure you disclose any key relevant information. Shop around and always compare what's covered by a policy, not just the price. Some may be cheaper than others, but they may not offer the same level of protection.

Make sure you disclose any key relevant information – particularly any previous or continuing illness or disease. Shop around and always compare what's covered by a policy, not just the price. Some may be cheaper than others, but they may not offer the same level of protection.

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Top tips

1. Read the paperwork and ask questions if you don't understand anything.
2. Make sure you check what you're covered or not covered for.
3. Shop around when it comes to renewal time to make sure you're getting the best deal, but beware that any existing conditions will probably not be covered by a new insurer.

Other types

You can buy insurance for almost anything these days, so think about what you might need to protect and don’t forget to shop around.

Here are some more types that you may want to consider:

• mobile phone insurance;
• legal expenses insurance;
• extended warranties; and
• single-item insurance.

Mobile phone insurance

What it does
Mobile phone insurance generally covers you for theft of or accidental loss or damage to your mobile phone. Some policies also provide cover for fraudulent calls but the cover generally only applies after the theft has been reported.

You can buy it through your mobile phone provider, through another insurance provider, or it can often be included with packaged bank accounts.

Costs
Unlike most insurance, mobile phone policies usually don’t depend on age, sex, work, income or any other standard demographics. They also don’t tend to take claims history into account, or how expensive your handset is, so everyone falls into the same category.

Key things to think about
Check if you are already covered under your contents insurance policy, which may cover personal possessions (such as mobile phones, laptops, cameras and jewellery) taken outside the home against loss, theft or accidental damage. If you’re not already covered, you may be able to add it on for a smaller amount of money than buying mobile phone insurance separately. Always make sure you check the terms and conditions, particularly about theft cover when left unattended and the amount the policy pays out. If you have a packaged bank account, check if you are covered under this.

If it is not already covered by your contents insurance policy or a packaged bank account, the decision on whether you should get it or not is based on what sort of contract you have, how expensive and personally valuable your phone is, and how likely you are to damage or lose it.

If, for example, you have a Pay-as-you-go phone contract, then if you lose your phone, it may be cheaper just to get a new phone with a new contract, as once the money you have topped up on the phone runs out, it can’t be used fraudulently. However, if you have just started a 12- or 18-month contract with a very expensive phone, then it may be cheaper to get the insurance, as you will probably still have to pay the monthly charges until the contract runs out.

Shop around and always compare what's covered by a policy, not just the price. Some may be cheaper than others, but they may not offer the same level of protection. Some may give you the same handset, while others may give you an equivalent one.

Precautions you can take

• Don’t leave your mobile phone unattended – keep it with you or out of sight.
• Set a maximum monthly credit limit.
• Bar international calls.
• Back up your important information for free – it’s often the information on your phone that is personally valuable rather than the handset, so make sure you’ve got a list of all your important phone numbers, and get any texts backed up on your computer. Most modern phones will be supplied with a cable and some software to connect them to your computer.

After-sales calls offering you insurance
When you buy a mobile phone you should be wary of any calls you receive soon after from companies offering you insurance cover (these companies may call it a warranty). You should also be wary if you are an existing mobile phone customer and receive a similar call out of the blue. Various unauthorised providers claim they are linked to shops and mobile phone providers but they may not be who they say they are. They may be trying to scam you out of your money and you will only find this out when you try to make a claim on your insurance and it fails. For more information, see Mobile phone insurance scam.

Top tips

1. Check whether you’re already covered, or if not, whether you can add it to your existing contents insurance policy.
2. Think how likely you are to lose or damage your phone, and look at what type of contract you are on.
3. Make sure you check the theft restrictions and what you're covered or not covered for.
4. Shop around when it comes to renewal time to make sure you're getting the best deal.
5. Always report your loss quickly, otherwise your insurance may be invalidated.

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Legal expenses insurance

What it does
This is a way of protecting yourself against some of the costs involved in a legal dispute, which can be very expensive. There are two basic types of legal expenses insurance: before the event and after the event.

Before the event
The cover often provides for legal advice helplines, as well as the costs of appointing solicitors, expert witnesses and representation if the claim goes to court.

If you've decided you want this type of cover, check your motor or household contents insurance policies – you may already have this cover written into your insurance or be able to add it for an additional cost. Be aware that you will not be covered for legal costs relating to a dispute, or cause of a dispute, that began before you added the cover. This is why this type of cover is called ‘before the event’.

Legal expenses cover under a motor policy will only apply to legal proceedings in connection with motoring whereas cover under a contents insurance policy will apply to a range of legal proceedings (such as home ownership, employment, boundary disputes etc). You will need to check the type of disputes a policy covers before deciding which one to purchase or look for a standalone policy.

You should also check your policy documents carefully to make sure you understand what you are covered for, the level of cover and any limitations that apply. For example the policy may only cover claims which are reported to the insurer within a set number of days of the event which led to the claim. So contact your insurer before choosing a solicitor and incurring any costs.

The policy will have many terms and conditions so check the limit for costs payable. Another condition will be that the insurer can withdraw funding if there isn’t a 'reasonable prospect of success', which usually means that it assesses your case a having a 50% or less chance of winning or successfully defending your case.

After the event
This type of legal expenses insurance is taken out at the time you seek legal assistance – so after the event leading to the dispute has happened. Most often you will arrange this through your solicitor but there are specialist brokers that sell it too.

It costs a lot more than ‘before the event’ cover, and covers only the one legal dispute. The condition allowing the insurer to withdraw funding if there is no longer a ‘reasonable prospect of success’ also applies.

Sometimes you can arrange with the solicitor to defer paying the premium until your case settles. You need to make sure you discuss your insurance needs with your solicitor before deciding whether the cover is right for you.

Freedom to choose a lawyer
There was a recent European court judgement which clarified that legal expenses insurance must not limit the insured's freedom to choose a lawyer. The court ruled that no provisions could detract from, or qualify in any way, the freedom to choose a lawyer.

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Extended warranties

What they do
When you buy something new, the law requires it to be of satisfactory quality. The manufacturer or retailer will usually guarantee the product for a period of time, generally a year. An extended warranty covers you for repair costs after this guarantee has expired.

You can also buy insurance for appliances you already own but which are not currently insured, subject to their age and condition. With this type of cover there is usually a ‘no-claim’ period immediately following the start of the cover during which claims for breakdown will not be met.

These policies cover repair costs following the breakdown of most household appliances, and most also cover parts and labour. There is usually a maximum amount payable during the life of the policy and some may have a limit on each claim.

If the appliance cannot be repaired, ‘new for old’ policies will replace it with a new one of similar specification, or pay a cash equivalent if a similar model is no longer available. Other policies will make good up to the current value of the product after depreciation.

Some policies provide additional benefits, such as accidental damage or frozen food spoilage.

What isn't covered
Policies usually exclude misuse, non-domestic use and cosmetic items such as damaged paintwork or trims.

Additional consumer protection
Since 2005 there has been additional consumer protection to combat the hard sell associated with these warranties, where retailers often sold warranties when the consumer was in the shop buying the goods.

You can, if you wish, still buy cover from the retailer. Alternatively, you can buy it from specialist insurers, insurance brokers, banks or other financial institutions. This type of cover is now sometimes included with packaged bank accounts. It is now also possible to buy warranties that cover a number of appliances, such as all the electrical equipment in your kitchen.

Things to watch out for
Some warranties are not insurance contracts and are therefore not regulated by the Financial Services Authority, or covered by the Financial Ombudsman Service or Financial Services Compensation Scheme. These usually have names such as ‘service contracts’. With service contracts, your payments are put into a pool that is used to pay claims. In many cases this pool is protected, so that if the retailer goes bust your claims would still be paid. But that is not always the case. You should receive information when you take out the contract about whether or not you would be covered in the case of insolvency.

Beware that some warranties offer no more protection than your entitlements under normal consumer protection legislation, and in some cases you may already be covered by your contents insurance policy and have no need for a warranty. Also, think about how likely the product is to break down.

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Single-item insurance

Before buying insurance that just covers one item:

• always think carefully about whether you need the separate insurance policy, what cover it provides (particularly the exclusions), and whether the cost is proportionate;
• don’t feel pressured into taking the insurance cover when purchasing the product – you can go back afterwards or look around for a cheaper or better policy elsewhere;
• check your existing contents insurance – if it’s not already covered you might be able to add it for less than the separate policy;
• check any insurance cover you may have included with a packaged bank account – however, make sure you compare the cover and any exclusions, and be aware that if you cancel the bank account, the insurance cover will be cancelled at the same time; and
• watch out for credit charges if you’re adding the insurance on to finance.

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Getting help

You can buy insurance yourself or with the help of a broker, but either way you’ll get key policy information about the insurance and what it covers.

Generally, firms selling insurance and those providing insurance cover (underwriting the risk) have to be regulated by the Financial Services Authority (FSA), the UK's financial services regulator, or be the agent of a regulated firm. There are some exceptions, for example the sale of extended warranties on non-motor goods (such as on electrical goods) where the person selling the insurance is also providing the goods.

Regulated firms and their agents are put on the FSA Register and have to meet certain standards. Always make sure that the firm you use is on the FSA Register before handing over your money. If they aren't regulated by the FSA, you won't have access to complaints and compensation procedures if things go wrong – see If things go wrong. To find out if a firm is on the FSA Register, see Check the FSA Register.

Your friends or family may recommend an insurance broker or insurance company or you can find one along your high street. Alternatively there are organisations that can help you – see Useful links. But remember, always check that the firm you use is on the FSA Register.

If the firm is not on the FSA Register, or if you have been contacted by or dealt with an unauthorised insurance firm or broker, it would help the FSA if you would provide some information on your dealings with that firm or individual. See its list of Unauthorised firms/individuals [ http://www.fsa.gov.uk/pages/Doing/Regulated/Law/Alerts/unauthorised.shtml ] and report any dealings using its Unauthorised firms reporting form [ http://www.fsa.gov.uk/pages/Doing/Regulated/Law/Alerts/mgi_form.shtml ].

Buying without advice

You don't have to get advice before you take out an insurance policy, and UK firms that sell insurance without advice still have to follow the FSA's rules. But it is up to you to decide whether the policy is suitable for you. You may have less grounds for complaint if the product turns out to be unsuitable.

Comparison websites

Comparison websites will ask you several questions and then provide you with quotes from various brokers and insurers. None of the websites cover the entire market, and some larger insurers are not represented on any of the websites, so you may wish to contact them directly. The comparison website should contain a list of the brokers and insurers they search.

Some insurance comparison websites may ask you fewer questions to speed up the process, and instead make a number of assumptions about you. Always check the assumptions made about you and correct them where necessary.

Most comparison websites will automatically pass your information on to a broker or insurer. Although this means you don't have to provide them again, you should check that the correct information has been provided to the broker or insurer. If anything is incorrect you should either change the information on the broker or insurer's website, or contact them and ask them to
change it.

The Association of British Insurers (ABI) has a voluntary good practice guide for insurers, brokers, software houses and insurance comparison websites when providing online price comparison quotes for insurance.

This will mean that you’ll get information to help you understand more about the policy you’re being offered. It also says that insurers who are unable to provide a quote to a customer (for example due to age or health) should refer them to another provider who may be able to offer them cover.

When using a comparison website make sure:

• adverts about the site don’t make misleading claims about their market coverage – none of them covers the whole market, so if they claim to, this is unlikely to be true;
• you fully understand what savings you can make if the firm is advertising what looks like an attractive rate;
• the assumptions made about you are accurate and the same as the ones on the insurer’s quote; and
• you understand what excesses you might have to pay.

See our Shopping around guide for more information.

What information will you get?

When you contact an insurance broker they will give you:

• details of the service they are offering you – see Step 1; and
• information about the insurance policy being offered to you – see Step 2.

Step 1 – Getting the Keyfacts

When you contact an insurance provider, they will give you details of the service they offer. It may be in a about our service document, but doesn't have to be. They will tell you:

• whether they're offering you advice or just information about the product;
• whose insurance policies they offer – it may be from one company or many; and
• how much you'll have to pay for the service.

Use this document, or information to shop around to get the service you want at the price you're happy with.

Step 2

Once you've discussed what you need and answered all the questions about yourself and what you want to insure, the intermediary, insurance company or the firm selling you the insurance will give you key policy information. This sets out the essential facts. Ask questions if you don't understand anything as misunderstandings could lead to the insurance company refusing to pay out when you claim.

The policy information will set out:

• what the insurance policy actually covers;
• what it doesn't cover;
• any limits or restrictions; and
• other important features you need to know before you make up your mind.

Make sure you get this and that you read and understand it. Ask the provider or insurance company to explain anything you don't understand.

Use this document to shop around and compare like with like. Another policy may be cheaper but does it offer the same cover?

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Top tips

1. Check that the firm is on the FSA Register.
2. Use the policy information to compare other policies
3. Answer the questions as best you can – it will help avoid misunderstandings.
4. Ask questions if something is not clear.

Making a claim

If the worst happens and you need to make a claim on your insurance, here’s some information about what you need to do.

• Before you get on the phone to your insurer you should find your policy details to make sure you have the appropriate cover for the loss or damage. Different policies provide different levels of cover.
• If you have more than one insurance policy that you may be able to claim under, check which has the lowest excess. Note, though, that you can only claim once.
• Check your excess against the cost of replacement or repair. Remember that if you make a claim, your future premiums will most likely increase, so if the excess is £50 but you want to claim £100, it’s probably still not worth making a claim, as your future premium may increase by more than £50.
• Once you’ve decided which policy you’re going to claim on, then it’s time to contact your insurer to tell them you want to make a claim. They will then take you through a claim form or send it to you through the post. Note, though, that if you’re just asking them questions rather than making a claim, make sure they know this, otherwise they may note down that you’ve asked about making a claim, and this may still adversely affect your future premiums.
• Fill in the claim form as soon as you can. Bear in mind, you may also need to get cost estimates, so keep any receipts or invoices that you’ve already paid, as you may need these as part of your claim.
• Keep brief notes of all telephone conversations with your insurers, so you can refer back to them if you need to.
• If you’ve been a victim of a crime you should also get in touch with the police as soon as possible (and you may need a letter from your tour operator or hotel if this happened abroad).
• Don't exaggerate. False information on a claim can lead to the whole claim being rejected.

Rejected claims

You have a right to complain about rejected claims – see If things go wrong.

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Settling a claim with the other side's insurer

If you’ve been injured or your car has been damaged in a road accident that wasn’t your fault, the other driver's insurer may contact you to negotiate a settlement. Or if you suffer an injury at work, your employer’s insurer might contact you. If an insurance firm contacts you directly in an attempt to settle their client’s claim, this is known as third-party capture or third-party assistance.

They are legally allowed to do this; however, it is important that you understand your rights and that you remember that they are not working for you.

Things to consider

Here are some things to consider if this happens to you.

• You are not under any obligation to accept any or all of the services or settlement offered.
• You should not be rushed into a decision. For most types of injury, with a few exceptions, you have up to three years from when the accident happened to make a claim for compensation.
• If you have been injured, you should consider a full medical examination to ensure you are aware of any injuries you may have sustained.
• If an insurer offers settlement, make sure that the purpose of the payment is clearly explained. If you are asked to sign for any payment, make sure you fully understand what you are signing and whether or not it is for full and final settlement of the claim.
• Be aware that if the insurer offers to refer you to a solicitor, they may receive a fee for that referral. You can appoint your own solicitor instead.
• Settling directly with the insurer may mean you get compensated more quickly than if you appoint a solicitor or go to court. However, the amount of compensation offered by an insurer may be higher or lower than the amount you would receive if you appoint a solicitor or go to court.
• You have the right to seek independent legal advice at any time. If you are worried about the cost of using a solicitor, see Community Legal Advice’s website – see Related links.

If you are in this situation it can be an emotional and difficult time. You should take time to consider your options. It is important to remember that although an insurer may approach you, it is your decision at all times whether or not to accept either their services or any compensation offered, and if you are unsure you may wish to consider seeking legal advice.

There are a number of organisations that provide further advice in this area, including:

• Citizens Advice Bureau;
• your union (if you are a member);
• the Association of British Insurers (ABI);
• the Association of Personal Injury Lawyers; and
• the Motor Accident Solicitors Society.

See Related links for more details.