About 'Introduction to insurance'
We all experience key moments – events that change our lives. Some are exciting: when we move into a place of our own, buy our first car, plan a big trip, welcome new people (or pets) into our lives. Others can happen suddenly: illness, redundancy, accidents, bereavement.
Planning for these moments helps us enjoy the exciting times and cope with those we don’t see coming. Insurance can be part of that planning, by helping to protect your finances when these things happen.
In this lesson, we’ll look at what insurance is, plus how to find and use it.
What you'll learn
What insurance is, and how it works.
What you need to consider before taking out insurance.
How to get the most out of your insurance.
How long it takes
17 minutes
What is insurance?
Chapter 1
How long it takes
6 minutes
How insurance works
Insurance can help by reducing or covering your costs when something unexpected happens. Like an accident while you’re on holiday or storm damage to your home.
When you take out insurance, you agree to pay a premium. This is an amount of money that you usually pay the insurance company each month. In return, they agree to help pay for the bills or emergencies that the insurance covers. The policy document tells you what it covers. It explains what the insurance will pay out for, plus any exclusions and conditions.
You may need to pay an ‘excess’, too. This is what you pay when you make a claim, to cover part of the costs. For example, say you have pet insurance and your dog needs treatment that costs £500. If your insurance has a £100 excess, you pay the first £100 and the insurance pays £400.
Types of insurance
Insurance can cover you for many different events and situations.
Let’s look at some common types:
Home insurance
Different types can protect your home and items in it from things like theft and accidental damage.
Car insurance
This can help if you have an accident or your car is stolen or damaged.
Travel insurance
To cover trip cancellation, loss or damage to luggage or medical costs if you become ill on holiday.
Life insurance
This can help families financially when a loved one dies.
Income protection insurance
Pays out a regular monthly amount if you can’t work due to ill health or injury.
Critical illness insurance
Pays out a lump sum for some serious illnesses.
Pet insurance
To help with the costs of your pet’s healthcare.
Home insurance
There are two types of home insurance:
- Buildings insurance covers the building itself – The walls, doors, windows and roof.
- Contents insurance covers items in your home – For example, furniture, clothes and jewellery.
Some types of home insurance include both building and contents. If you’re buying a home, you may want to consider these, or to take out both types. Most mortgage lenders need you to take out buildings insurance.
Renting a place? Your landlord is responsible for buildings insurance, but it’s worth looking at contents policies to cover your belongings.
Be aware
Contents insurance isn’t just for items that you always keep at home. It also covers things you wear or take outside, like jewellery or mobile phones. You can claim for loss or damage to these whether they’re inside your home or not.
Car insurance
In the UK, it’s illegal to drive without car insurance. Even if you don’t drive your car, you’ll still need insurance unless you’ve declared it as ‘off the road’.
Car insurance can be:
Third party
The legal minimum. Covers damage you cause to other people or their property, but not your own car.
Third party, fire and theft
Gives third party cover, plus loss or damage to your car due to fire or theft.
Comprehensive
Includes third party, fire and theft, damage to you, your car and passengers, theft from your car plus some extras.
Travel insurance
The type of travel insurance you take out will depend on what you need:
- Single trip insurance – This covers just one holiday.
- Annual multi-trip insurance – This will cover you for multiple trips in a 12-month period.
- Destination-specific insurance (for example Europe-only) can be cheaper than ‘Worldwide’ cover.
- Couple or family cover – For more than one person on the same policy. Costs depend on the age and health of each person.
- Specialist insurance – For certain activities or types of holiday, like skiing trips or cruises. You may also need specialist cover if you have health conditions that standard policies don't cover.
When you book a trip, the holiday company or airline may try to sell you their own travel insurance. This might not be the cheapest option – or the right one for you.
Some credit cards or types of bank accounts may also include travel insurance. If you have this option, check that it meets your needs and gives the right cover.
Be aware
Multi-trip insurance often has limits on the number of days you’re away for each trip. Check the details, especially if you’re thinking of going away for longer holidays.
Life insurance
This type of insurance will pay either a tax-free lump sum or regular monthly amounts to your family if you die. Some policies also cover critical illness.
Types include:
Level-term
You decide the ‘level’ (the amount to be paid) and ‘term’ (how long the cover lasts).
Mortgage life insurance
This covers your mortgage if you were to die before paying it off.
Whole-of-life
While fixed term only runs for a fixed term, this cover lasts until you die.
Income protection
Also known as ‘permanent health insurance’ (PHI), this can help if you become too ill to work.
You can take this out if you’re:
- Employed – To boost your sick pay.
- Self-employed – Gives you an income while you’re not working.
You may not get as much income as you had before you had to stop work. Plus, the payments may not start straight away. Some types of this insurance pay until you return to work or retire. Others just cover you for a certain amount of time.
Be aware
Payment Protection Insurance (PPI) is different to income protection. If you can't make payments on loans or credit cards (for example, due to loss of income) PPI can pay your lender for you. Usually this is just the minimum payment amount, for a fixed amount of time.
Visit the Money Saving Advice site for more information on PPI.
Critical illness
With this type of insurance, you get a lump sum payment if you get a serious illness or injury. It’s worth checking to see if you have this as part of your life insurance.
Each policy has a list to show what it covers and what it doesn’t, so do check carefully. For example, they don’t usually cover terminal illnesses. There’s often an upper age limit of 75 for payouts, and you can only make one claim. After the claim, the policy ends.
Pet insurance
People buy pet insurance to help with vet bills.
There are three types:
- Accident only – The cheapest option.
- Lifetime cover – This covers accidents and illness for your pet’s lifetime. It can cover conditions that need treatment over many years. You may reach a claim limit one year, but this will reset the next year so you can claim again.
- Non-lifetime cover – Like lifetime cover but limits the claim amounts and / or time covered.
Other types of insurance
Private health insurance
Can give more choice or faster treatment than public healthcare.
Extended warranties
To cover repairs to new goods, when their guarantee ends.
Wedding insurance
Can cover illness, or issues with suppliers or venues.
Gadget insurance
For portable items like your mobile phone, laptop or camera.
Idea
Do you have home contents insurance? This may already cover your gadgets. It's worth checking if this is the case. It could save you the cost of over-insuring.
Do you need insurance?
When you take out insurance, you’re making one-off or regular payments. So you might wonder if you can afford it. On the other hand, it can help by paying out if something unexpected happens. It’s good to think about each type of insurance in terms of whether it’s worth taking out.
Insurance can:
- Protect you and your loved ones from financial loss.
- Reduce stress when something happens.
- Give you more choices (for example, health insurance).
- Be a legal requirement (for example, car insurance).
What to think about
Do you have this cover already?
For example, you may have income protection through work.
What savings do you have?
You may be able to use these to help with unexpected costs.
Can you afford the premiums?
These can be high and you may never need to make a claim.
Find what's right for you
Chapter 2
How long it takes
6 minutes
What do you need from your insurance?
Once you decide that you need insurance, your next step is to think about what you want from it. This will include asking questions like ‘how much do I want to be paid if …?’ and ‘how much excess can I afford?’.
You’ll also need to think about what you’ll need if the worst happens.
For example:
- Car insurance - Will you need the loan of a replacement car while yours is with the repairers?
- Travel insurance - What extras and amounts are in the ‘Gold’ level that aren’t in ‘Silver’?
- Home contents insurance - Is your expensive camera included, or do you need gadget insurance?
How to find insurance
You can find insurance:
Direct from insurers
There may be a company you prefer, or who meet specific needs. You can call or visit their website.
From an insurance broker
These financial advisers are insurance experts. They can also help with claims. The British Insurance Brokers’ Association (BIBA) has a ‘find a broker’ service.
By using a comparison site
You can see and compare quotes from many different insurers online. We talk about these sites in our Save money on insurance products lesson.
Be aware
‘Ghost brokers’ on social media tempt people with cheap offers for car insurance that turn out to be fake. Be wary of those that offer insurance for much less than other companies.
Legitimate brokers and insurers are registered with the Financial Conduct Authority (FCA). So if you’re not sure, check the insurer on the FCA site.
What to look for
It’s important to check the details of any policy before you decide to buy.
This will tell you about:
- Costs – Total cost of premiums plus fees, charges and extras.
- Features – What the policy covers.
- Restrictions – What the policy doesn’t cover.
- Excess – You may be able to buy cheaper insurance if you opt for a higher excess.
Test your knowledge
Try again - that's not quite right!
Before you go ahead and buy that insurance, make sure it covers your needs.
That's right!
Your policy details will confirm what it covers. Checking these before you buy will help to show if it’s right for you.
When it's hard to get insurance
When you start to look for insurance, you’ll need to answer some questions. Insurers use your answers to work out if they can offer you insurance plus how much it’s likely to cost.
You may have problems getting insurance, for example if:
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These can make getting travel, health and life insurance harder. Specialists may be able to help if you’re struggling to find insurance elsewhere. Many comparison sites don’t include these, so try the Money Helper site for travel insurance. The Money Saving Expert site has useful advice on life insurance, too.
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For instance, younger drivers (age 17 to 24) are likely to pay more for car insurance.
You can reduce those costs by:
- Fitting a car alarm, engine immobiliser or car tracking device.
- Taking safer driving courses from organisations like IAM RoadSmart.
- Adding another driver with more experience to your policy.
Often, car insurance costs go down as you get older. This works until you reach your 70s, when it’s likely to rise. The Age UK site has some useful ideas on how to lower these costs.
If you’re older, you may struggle to get affordable travel insurance. This article gives you more information on travel insurance for over-65s.
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Insurance and other financial products are often hard to get if you have an unspent conviction. The Unlock site has a useful guide plus a list of insurance brokers who may be able to help you.
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If your neighbourhood is a flood risk, you may still be able to get flood insurance. The National Flood Forum has useful tips and a list of specialist brokers.
Flood Re may also be able to help you find home insurance. If your insurer is part of their Build Back Better scheme you could get extra help to protect your home in future.
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Insurers like to ask about your work. They’re likely to see a 9-5 office job as less risky than if you’re a firefighter, for example. Most insurers will cover you, but be prepared for some in-depth questions about your work. This article lists jobs that may lead to higher life insurance costs, plus tips on how to apply.
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From rock climbing to quad biking, it’s good to check your travel insurance covers the activities you want to do on your trip.
Insurers will vary in terms of what they may or may not cover, so do check carefully. The policy details should have a list of exclusions, plus what sports and activities it covers. If you can’t see your sport, contact the insurer to check.
Remember
Policy exclusions are the most likely reason for insurers not to pay a claim in full, a survey by Which? showed. So check the list of excluded sports before you buy.
How to buy the insurance you've picked
Once you decide on a policy, you’ll need to give some details to the insurer so they can confirm the terms and price. These include common details like name, address and date of birth, plus other information specific to that type of insurance. They may also contact other organisations to get key information.
For example:
Life insurance
Most insurers ask for your medical records. They can only access this information if you agree. Bear in mind though, that if you refuse them this access, they may not be able to give you the cover you need.
Car insurance
You’ll need to give details of your car, annual mileage and any accidents you’ve been in for a period of time (often ‘in the last five years’). If you have ‘no claims discount’, you’ll also need to show proof of this.
Travel insurance
Insurers will ask where you’re going, and when. They also need to know of any medical conditions you have and the kind of activity you plan during your trip.
Paying for your insurance
You often have some choice around how to pay for your insurance.
Frequency
Can you afford to pay for your whole year’s car insurance up front? If so, this can work out cheaper than paying monthly. Other types of insurance may have annual, quarterly or monthly payment options.
Be aware that paying monthly can affect your credit score. If you pay on time every month, it can help your score. Late or missing payments could harm it.
Payment type
Paying by credit card can have some benefits. If you have a 0% interest credit card, you may be able to use this to pay an annual premium to save money.
Some insurers let you pay by direct debit. Once you set this up, the money goes automatically each month from your bank account. This can make it easier to manage as you don’t need to remember to make those regular payments.
You can usually change how you pay your premiums, though this may only be possible when you renew your policy.
Want to learn more about how to buy and pay for insurance? Our 'Save money on insurance products' lesson has plenty of tips.
Using insurance
Chapter 3
How long it takes
5 minutes
How to make a claim
Step 1
Check your policy
To make sure you can claim and decide whether to go ahead.
Step 2
Tell your insurer
Let them know as soon as you can. They’ll tell you what to do next.
Step 3
Note the details
Take photos, videos or write notes you can refer to, when you claim.
Step 4
Complete the claim
You may be able to do this online, over the phone or in writing.
Be aware
You may need to send extra paperwork like receipts, medical certificates or police reports.
Changes you need to tell your insurer about
Over time, our circumstances change. We need to let our insurers know about some of these. They’ll want to know when you change your name, address or contact details. Some will need to know about changes to your health or the work you do.
Others include:
Car insurance
Change of car, annual mileage, adding other drivers.
Buildings insurance
Building work, long trips away from home, getting a lodger.
Contents insurance
New high-value items, for example jewellery or furniture.
Remember
Every insurance policy is different. Check your own policy documents to see what changes you need to report.
When your policy ends
Some policies end after a set amount of time. As it gets near to its end date, you’ll need to decide what you want to do next.
Renewing
If you’re happy with your cover and the cost to renew, this is usually easy to do.
Switching
If you want to shop around, now’s the time to see if you can get a better deal.
Cancelling
If you no longer need this type of insurance, let your insurer know.
Be aware
Some policies have an ‘auto-renew’ feature. When it’s time to renew, your insurer will let you know how much the new premium will be. Then they’ll arrange to take the money automatically.
You can switch this feature on or off at any time.
Cancelling your policy before it ends
You don’t need to wait until your insurance ends to cancel it.
If you decide to cancel while it’s still active:
- You may get a refund if you haven’t made any claims.
- Your insurer is likely to charge an admin fee.
Look at your policy details to see if it’s cheaper to wait until the policy ends.
What to do if you're unhappy with your insurance
Good insurance means a policy that works for you. It will cover what you need, be easy to set up and make claims, for a price you’re happy with.
Not happy with your insurance? Here’s a few ideas:
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When you buy insurance, you’ll have a ‘cooling-off period’. This is a set amount of time when you can cancel it if you decide it’s not right for you. All insurers have to give you this, though the time limit can vary (typically 14 to 45 days). Check the policy paperwork to find out how long you have and how to cancel within this time.
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When you come to renew your insurance, the cost of the premiums may go up or down.
This may be due to:
- Any changes in your situation (like a change of address, getting older or health conditions).
- Claims you make.
- The insurer’s own costs
If you think the renewal price is too high, you may want to:
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Sometimes, insurers won’t pay for a claim, or will only pay for part of it.
This could be because:
- Information about the claim was missing or not quite right – Like how much damage there was.
- Information in your application was missing or not quite right – Like not telling them about a health condition.
- They think you didn’t take ‘reasonable care’ – For example, not locking your door.
If the insurer rejects your claim and you don’t agree with their decision:
Remember
If you feel your insurer has made a mistake or treated you unfairly, you can complain. Talk to your insurer first. If you’re still unhappy, contact the Financial Ombudsman Service.
How to find existing policies
Not sure if you, a friend or family member has an insurance policy? There are ways to find these policies.
See if you can find any policy documents
These may be in a safe place with passports and birth certificates.
Check bank and credit card statements
Look back more than 12 months for payments to an insurer.
Use an online tool
Free tools like Gretel can help you search for policies.
Further support
Need more advice on how to find and use insurance? Money Helper and Citizens Advice have useful tips and support.
Related learning links
Save money on insurance products
Managing sudden changes to income and outgoings
Want to learn more?
There are many more lessons to help you manage and save money online.
Lloyds Bank Academy is committed to providing information in a way that is accessible and useful for our users. This information, however, is not in any way intended to amount to authority or advice on which reliance should be placed. You should seek professional advice as appropriate and required. Any sites, products or services named in this module are just examples of what's available. Lloyds Bank does not endorse the services they provide. The information in this module was last updated on 25th March 2025.