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Why is insurance important?

What is insurance?

Insurance is a financial product that provides peace of mind and protection against loss, damage or theft. The list of what you can protect is almost limitless, with the most common relating to the things and people you love. For example, you can insure your home, car and phone. You can also protect your health and can even insure your life so your family would be looked after if something were to happen to you.

Risk vs protection

Insurance is all about managing risk. Some insurance is compulsory, for example, motor insurance for drivers. You might need other insurance as a condition of contract, like buildings insurance if you have a mortgage on your home. Most other insurance types are a matter of choice, and involve you prioritising what's most important, within the budget you have available.

Protecting the things you love:

  • Car – including accident, breakdown, gap and windscreen insurance

  • Home – including buildings, contents, valuable items and household appliance cover

  • Personal items – like your phone, tablet, jewellery, gadgets, purse or wallet

  • Travel – including holidays and flights

  • Pets – covering those unexpected veterinary costs

Protecting the people you love:

  • Health – healthcare for you and your loved ones

  • Life – providing peace of mind with a lump sum payment if you pass away, as well as helping you to leave a meaningful legacy for you and the people you care about

Protecting yourself:

  • Income and payments – including income protection, payment protection and critical illness insurance

It may also be worth prioritising the risks that you'd find hardest to cover yourself. For example, most people would not be able to replace all their belongings after a serious fire, or pay for medical treatment during a foreign holiday.

For other, smaller risks, it might be worth considering putting regular savings aside in an emergency savings fund, rather than taking out insurance. We consider this in more detail in section 5.

Financial wellbeing

While all insurance is important, some types will be more relevant to your current situation.

When it comes to protecting your loved ones' health and financial futures, you have options.

Protecting your overall wellbeing is an important part of protecting yourself.