Don't Be Left Unprotected - Understanding Insurance

The insurance industry is complicated. There are so many different types of coverage and options to choose from, it's hard to know where to start.

Luckily, here at Willow Tree Financial Services, we’ve got you covered!

You deserve peace of mind knowing that everything will be taken care of in case something happens. We want to make sure that your family has all their bases covered, no matter what life throws at them. That's why we're here for you every step of the way. Let us help you understand the jargon, get insurance quotes and find the best policy for your needs.

How often do you think about insurance?

Insurance is something we all have, but don't often really think about. We're so used to it, we forget it's there when things are good and only remember it when bad things happen.

Insurance can be something as simple as car insurance to protect against damage to your vehicle if it's involved in an accident with another driver, or something more complex like life insurance to provide for loved ones if you die. The point of insurance is that it provides protection from risk and uncertainty.

We know it can be an overwhelming process to figure out what you need, how to get it and who offers the best deal. Read on and we'll help you make sense of it all. After all, it's important to know what kind of insurance policies exist so you can find the ones with the best fit for your needs and budget.

How does insurance work?

Broadly speaking, most insurances - certainly the ones we are talking about today - work in the same way.

You pay a small monthly fee to protect against something bad happening - such as damage, loss or theft. If any of those things happen, the insurance company covers the cost of the repair or replacement.

Example: when you buy a new phone, they offer you insurance.

Let’s say you buy a new phone for £500, and you want to protect against it being lost, damaged or stolen - because if any of those things happen, you don’t have another £500 to spend on a new one

You take out the insurance policy, let’s say for £10 per month, and if anything bad happens, your phone would be repaired, you would be provided with a replacement, or you would be paid out the £500 to go and buy a new phone.

That’s how insurance works.

It’s important to know that if you don't suffer any loss or damage, you don’t get your money back.

The insurance company takes the risk they may have to pay out and you take the risk you may never need the cover.

Why do you need insurance?

Insurance can be intimidating to understand, but it's important!

Insurance is a type of risk management that can help you avoid the financial consequences of an unforeseen event - so it's important to have coverage for your home, car, health, life and more.

When you have insurance, it gives you peace of mind. You know that if something happens, your expenses will be covered. And the more coverage you have on a policy - like car or health insurance, for example - the less likely you are to get stuck with large out-of-pocket costs should disaster strike.

Cutting through the jargon

You might be confused about insurance because of all the complicated words that are used. It can be too easy to skim over them and not really take things in, so let's look at some of those complicated terms and make them easier to understand.

  • Premium - this is the payment you make to the insurance company to buy the insurance. This could be monthly or annually depending on the policy type.

  • Cover / Benefit - This is the amount that would be paid to you if you suffer loss or damage.

  • Claim - This is when you ask the insurance cover to pay out to you - this is called making a claim. You are claiming money back from the insurance company.

  • Excess - This is the amount you agree to will pay towards the cost of the repair or replacement.

Hmm, that Excess one is a bit confusing, so let’s explain that going back to the phone example from earlier.

Let’s say the insurance policy you have taken out has a £50 excess.

Your phone is stolen, so you make a claim. Instead of receiving the whole £500, the excess means you have agreed that you will not claim the first £50 - so you would receive £450 from the insurance company. A lot of policies have an excess, and you should always check what this is before you take out the policy.

Typically, the higher the excess you agree to, the lower the monthly premium payment will be. However, it's important to not sacrifice the amount of cover you get just to make it cheaper, else you may find yourself in the situation of having paid out for an insurance policy that doesn't provide enough cover for the repair or replacement you need, and you are left high and dry.

It's important to know what kind of insurance policies exist so you can find the ones with the best fit for your needs and budget.

General Insurance for your home and more.

The most common types of insurance are called General Insurance Policies and they protect your home, vehicle, and pets.

  • Car Insurance - the most common insurance policy. This is a compulsory policy, meaning it is against the law (in the UK) to drive a car on the road without it. The policy will not only cover your car if you cause an accident, or your car is stolen, but it also covers the person not at fault, as your insurance also pays for repairs to their car.

  • Home insurance - there are two types of home insurance - buildings and contents. These can be bought together as a combined policy, or as separate policies, even from different companies. Buildings insurance pays for damage to the property itself, from something like a fire or a flood. Contents pays for your belongings inside the house - like furniture, valuables and other belongings. It will protect against theft (burglary), or damage from fire or flood.

  • Travel insurance - this provides cover for emergences when on holiday. This could be to pay for medical treatment, replacing lost luggage, or even as we've seen recently, refunding your cost of the holiday if you can’t travel due to a worldwide pandemic.

  • Pet insurance - to cover the vet costs when your pet has an accident or needs treatment for an illness or condition ongoing.

Personal Insurance in case of accident or death

After General Insurance Policies, Personal Insurance Policies are the next most common. This type of insurance will cover a person, as opposed to an object. Sadly, bad things happen to people too – like illness, accident or even death.

One of the most common areas of personal protection is Life Cover, which provides a sum of money if the person insured dies. The policy is there to help out family members if the worst were to happen. It can pay off a mortgage or other debt, or to cover ongoing monthly bills. It can take some of the financial pressure off when things are already difficult.

Critical Illness Cover often goes hand-in-hand with Life Cover. This is another type of insurance that helps relieve the money pressures during a pretty tough time for a family, as it pays out on diagnosis of a serious illness – such as cancer or a heart attack.

There's some complicated jargon that's used in these types of policy too;

  • Sum Assured – this is the amount of money you would receive if you made a claim.

  • Term – the set period of time the insurance is taken out for. For example 20 years. If you have a 20-year mortgage you would want a 20-year life insurance policy to ensure the mortgage would be repaid. At the end of the 20 years, once your mortgage is repaid, the policy ends as it is no longer required.

  • Whole of life - This policy doesn’t have a set term. It runs until the insured person dies.

Income Protection in case of illness

The next type of insurance is Income Protection. This type of policy pays out if someone cannot work due to a long-term illness. It pays a monthly income designed to replace your salary so you can still pay bills, buy food or and cover other essential costs.

If you are looking at this type of policy, one thing you should pay close attention to is the deferred period.

Deferred Period - This is the length of time you need to be off for work before the policy pays out. Think of it like an excess. It is in place because this policy is designed for long term illness - not short term ones like colds. Most common deferred periods are 3 or 6 months. This means that the monthly income only starts at being paid out after the deferred period.

Accident and Sickness Cover provides short term income protection, which can pay out after 30 days. However this type of policy only provides cover for a year or two, whereas Income Protection can pay you until you reach retirement age.

Health Insurance or Private Medical Cover

Here in the UK we are fortunate to have the NHS as a free healthcare system. However, waiting times at the NHS can be discouragingly long, and avoiding waiting lists by going private is a feasible option.

Unfortunately, this can be very expensive, so having health insurance means that if you need treatment, the insurance company picks up the bill.

You may find your employer offers some health insurance as part of your contract. Some also provide death in service cover - which is a type of life cover that is paid to your family.

Finding the right insurance policy for your needs

Most people know they need insurance, but don't know what type of coverage to get.

Choosing an insurance policy can be time-consuming and confusing. There are comparisons sites available - however these only tell you about the policy - not if it is actually any good for your needs.

Insurance Brokers and Financial Advisers can access your circumstances and find the most appropriate policy for you – taking all the stress and frustration away.

Whichever way you choose to buy insurance, it's essential to read your policy documents thoroughly and understand the type and amount of cover you have in place. If you have paper copies of your documents, make sure to store your documents in a safe place, as you will need them in case you need to make a claim. If you purchased insurance online, your documents will normally be available in your online account for you to download, or will have been emailed to you.

I hope that explains the different types of insurance thoroughly. If you have any other topics you would like me to elaborate on, please let me know. Willow Tree Financial Services is here to guide you through the complicated world of money and help to make sense out of your finances.

The complexity that is often associated with matters such as finance can overwhelm, but Willow Tree Financial Services help make it easier for clients by providing guidance on various financial aspects so they may better understand their situation.

If this is something you would like to learn more about or have a look at the variety of policies you can apply for, do not hesitate to contact us.

Call us on 01323 436680 or email

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