When getting to grips with the terms and definitions surrounding insurance policies, it can help to have an option to compare and contrast them to. The IMC team have produced a variety of detailed guides to individual types of insurance elsewhere on our blog. In this article, we collate the more popular insurance types that our team offer advice on.
Life insurance
Life insurance policies are taken out to ensure that certain payouts are received upon your death. The amount of money you receive and what it is for will vary based on the policy you choose, but they are all designed to ensure that your loved ones have access to continued financial support – even when you’re no longer around to support them (or pay any outstanding bills).
How can it benefit me?
If you have a family to support, life insurance gives them (and you) the security of knowing that they’ll be okay – even after you’ve gone. For more key benefits, read our article on whether you really need life insurance. Those who are not breadwinners in the family may not see the need for life insurance, but it can still be a very beneficial policy to take out. If you are a stay-at-home parent, you could use a life insurance payout to cover childcare costs.
If you’re young, life insurance could be beneficial in helping to cover funeral costs, or you could use it to assist elderly relatives. Alternatively, you may wish to get life insurance while you’re younger simply to keep the costs down. See our article on why you should get life insurance while young for more information.
Key terminology
There are two main variants of life insurance: term and whole life. We’ll outline the key differences between the two below.
Term life insurance
A term life insurance policy involves you paying for a policy to cover a specific period of time. If you die within this period, you receive the payout. The main benefit of these policies is that the premiums stay the same throughout the term based on your current age and health status. Of course, the main drawback of term insurance is that you may die outside of the term, meaning that there will be no payout at all. But usually, you will have chosen this kind of policy based on the fact that your loved ones wouldn’t be in need of a pay out outside of these terms. For example, your mortgage will be paid off, they will be financially independent or you no longer need care.
Whole-of-life insurance
As the name suggests, whole-of-life insurance policies cover you for your entire life. With this kind of policy, there is no term, so when you die, you are guaranteed a payout. While the premiums are more expensive than those for term policies, whole-of-life policies can be highly beneficial at any age and account for unforeseen circumstances, such as your loved ones losing their financial independence.
Private medical insurance
As you are no doubt aware, healthcare in the UK is free at the point of access thanks to the National Health Service. While the NHS is paid through taxation, individuals may choose to pay for private medical insurance, giving them access to privately-run medical facilities.
How can it benefit me?
Private healthcare can benefit you if you are searching for a more personal experience and level of care. Private hospitals can offer you private bedrooms rather than wards and you will have more of a say as to the specific physician or specialist that treats you.
Beyond that, you’ll be able to avoid those notoriously long NHS waiting times, leading to faster diagnosis and treatment. Ultimately, the benefit of going private is that the entire healthcare experience is a little more streamlined. Just remember, self-inflicted injuries, those resulting from war and cosmetic surgery, won’t be covered through your private medical policy. For more info, read our full article that looks at whether private healthcare is right for you.
Building and contents insurance
While it’s not a legal requirement, almost all mortgage lenders require you to take out a buildings insurance policy when buying your home. Buildings insurance is a policy that covers the cost of repairing damage to the property itself. (Contents insurance, on the other hand, is not required by mortgage lenders and covers your possessions within a property.)
How can it benefit me?
As we’ve mentioned, buildings insurance is likely to be a necessity if you want to be approved for a mortgage. Depending on the policy, it could cover everything from flooding to vandalism to fire damage and arson. Naturally, having a buildings insurance policy is incredibly important and beneficial, protecting your home from any issues that may damage it.
Contents insurance, on the other hand, is almost never compulsory – but that doesn’t mean it’s any less important. Contents insurance will pay out if your possessions within the home are irreparably damaged allowing you to replace them. If your home is flooded or damaged by fire, it’s all well and good that the buildings insurance will cover the repairs, but you will want to ensure that you are able to replace your possessions without incurring to high a cost.
The key terminology
Home emergency cover
As an addition to many contents insurance policies, home emergency cover ensures that any burst pipes, boiler breakdowns or similar will be dealt with quickly. You’ll likely have access to a 24-hour emergency line and it won’t cost you anything at the point of use.
Single article limit
The single article limit is the maximum limit set by an insurer for an item in your home. For instance, even if it was worth far more, a diamond ring may that’s stolen may be restricted by a single article limit of £1,500. As such, it’s important to tally up any items worth more than the single article limit and make sure that they are covered separately.
Sum-insured
The sum-insured is the maximum amount that your insurance company will pay out on a buildings insurance claim. If your home is entirely destroyed or irreparably damaged, the entire sum-insured will be paid out to you.
Mortgage payment protection insurance
Mortgage payment protection insurance covers your mortgage payments if, for whatever reason, you find yourself in a situation where you are unable to. While often abbreviated to ‘MPPI’ it’s important to realise that mortgage insurance has nothing to do with the frequently mis-sold payment protection insurance (PPI) on credit cards and unsecured loans.
How can it benefit me?
Life can throw a lot of things at us that we just don’t expect. You may find yourself sick for a particularly long period of time or be suddenly made redundant. Whatever the case, if you are put in an unforeseeable position that has made you unable to pay your mortgage, MPPI guarantees that you will be able to continue paying your mortgage. However, MPPI will not cover you if you voluntarily quit your job.
Your mortgage is an essential outgoing, so having MPPI means that you don’t have to worry if you can no longer cover it. It will not always be a requirement, as you may be entitled to a large redundancy pay, qualify for government help or be enrolled in an MPPI scheme at your workplace, we look into this more in this article.
We hope that this has made the different personal insurance types a little easier to understand. For friendly, independent financial advice on any of these topics, get in touch with the IMC team.