Lesson 8: Insurance Essentials - Cheat Sheet
Insurance Types Comparison
Insurance Type | What It Covers | Who Needs It | Typical Annual Cost | Priority Level |
Buildings Insurance | Structure of home against damage | Homeowners (mandatory for mortgages) | £150-£300 | Essential for homeowners |
Contents Insurance | Possessions against theft/damage | Homeowners and renters | £100-£200 | High |
Car Insurance | Vehicle damage and liability | All drivers (legally required) | £300-£1,000 | Essential for drivers |
Life Insurance | Payout upon death | Those with dependents | £100-£500 | High if dependents |
Income Protection | Income if unable to work | Primary earners | £200-£500 | Medium-High |
Critical Illness | Lump sum for serious illness | Primary earners | £200-£400 | Medium |
Travel Insurance | Medical emergencies abroad, cancellations | Travelers | £15-£100 | Essential when traveling |
Pet Insurance | Veterinary bills | Pet owners | £100-£300 | Medium |
Private Health Insurance | Private medical treatment | Optional in UK | £500-£1,500 | Low-Medium |
Coverage Level Calculations
Insurance Type | Basic Formula | Example |
Life Insurance | (Years of income replacement × Annual income) + Mortgage + Debts + Children’s education - Existing assets | (10 × £40,000) + £200,000 + £5,000 + £100,000 = £705,000 |
Buildings Insurance | Full rebuild cost (not market value) | £200,000 rebuild cost for £350,000 home |
Contents Insurance | Room-by-room inventory total | £35,000 for average 3-bedroom home |
Income Protection | 60-70% of gross income | £2,100/month for £3,000 monthly income |
Critical Illness | 2-3 years of income + medical expenses | £80,000-£120,000 for £40,000 salary |
Insurance Cost-Saving Strategies
Strategy | Potential Savings | Applies To |
Pay annually instead of monthly | 10-15% | All insurance types |
Increase voluntary excess | 10-20% | Home, car, pet insurance |
Bundle policies with same insurer | 5-15% | Multiple policies |
Improve home security | 5-10% | Home insurance |
Join Neighbourhood Watch | 5% | Home insurance |
Choose cars in lower insurance groups | 10-50% | Car insurance |
Build no-claims discount | Up to 70% | Car, home insurance |
Use telematics/black box | 10-30% | Car insurance for safe drivers |
Apply when younger and healthier | 20-50% | Life, health insurance |
Non-smoker rates | 30-50% | Life, health insurance |
Employer group schemes | 20-40% | Life, health, income protection |
Insurance Jargon Explained
- Premium: The amount you pay for insurance coverage
- Excess/Deductible: The amount you pay toward a claim before insurance kicks in
- Exclusions: Specific situations or items not covered by the policy
- Indemnity: The principle of returning you to the same financial position as before the loss
- Underwriting: The process of assessing risk to determine premiums
- No Claims Discount/Bonus: Premium reduction for not making claims
- Policy Schedule: Document outlining your specific coverage details
- Endorsement: An amendment or addition to the standard policy
Common Insurance Exclusions
Insurance Type | Typical Exclusions |
Home Insurance | Wear and tear, gradual deterioration, pest damage, deliberate damage |
Car Insurance | Driving under influence, using wrong fuel, depreciation, mechanical failure |
Life Insurance | Suicide (first 12-24 months), pre-existing conditions not disclosed, high-risk activities |
Income Protection | Pre-existing conditions, self-inflicted injuries, normal pregnancy |
Travel Insurance | Pre-existing medical conditions, alcohol-related incidents, countries advised against travel |
Pet Insurance | Pre-existing conditions, routine treatments, certain breeds, older pets |
Claims Process Best Practices
- Report promptly (most policies have notification timeframes)
- Document everything with photos/videos
- Keep receipts for emergency repairs or alternative arrangements
- Record names and details of anyone involved
- Review policy before claiming (check excess, coverage limitations)
- Be honest and thorough in all communications
- Keep detailed records of all claim-related communications
- Know your rights (Financial Ombudsman Service for disputes)
Insurance Needs by Life Stage
Life Stage | Priority Insurance Types |
Young Single Adult | Car, renters, travel, income protection |
Couple, No Children | Car, home/renters, life, income protection, travel |
Family with Children | Life (higher coverage), home, car, income protection, critical illness |
Empty Nesters | Life (reduced coverage), home, car, travel, private health |
Retirement | Home, car, travel, private health, funeral plan |