What Insurance Does

The aim of insurance is to compensate you following a loss so that you're as well off - but no better off - than you were before the loss occurred. The exception is life insurance (often called assurance); since a value can't be put on human life, it's up to you to decide how much cover you want.

An insurance policy is a contract and your rights as policyholder depend entirely on what is written in it and on any endorsements which may be tacked on. You can choose different companies and policies, but you have very little chance of influencing the terms of a particular contract. For the most part, you get the cover that the insurer is willing to offer. Insurance contracts are not covered by the Unfair Contract Terms Act 1977, so they can still rely on exclusion clauses.

In several of his annual reports, the Insurance Ombudsman has pointed to 'the apparent gap between promise and achievement' with many types of insurance. That gap has resulted in so much dissatisfaction and disappointment that the Ombudsman has even suggested that all glossy brochures for house insurance should carry a health warning drawing attention to the facts that:

- no policy covers all possible disasters, only those which are listed in it (though 'all risks' policies work differently - see p. )

- no claims can be paid if the policyholder is in breach of any of his obligations under the policy

- policyholders should read their policies on receipt to see if they provide the expected cover.

This Section therefore looks in particular at those aspects of insurance which demand a 'buyer beware' attitude. It doesn't consider any types of insurance which fall within the scope of the Financial Services Act in other words investment-type life insurance; these are dealt with in Sections 6 to 8.

Deposit-type Accounts

Buying Insurance

Simply by not owning three medium-sized castles in Tuscany I have saved sufficient money in the last forty years in Insurance Premiums alone to buy a medium-sized castle in Tuscany. Punch, 1974

Nobody likes to dwell on disasters, but accidents, fires, thefts, illnesses and death don't only just happen to other people. Insurance can't stop these things happening to you, but it can prevent financial hardship as a result. That doesn't mean that you must take out every kind of insurance available. The things which you are most likely to want to insure are:

- your home. If you own or... see: Buying Insurance

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