Why is insurance important and what can you protect?

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:

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

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.