Working out which types of insurance UK households actually need can be confusing. Some cover is a legal requirement, some protects you from financial disaster, and some is rarely worth the money. In this guide I go through the main types of insurance, who needs each one, and which you can probably skip.
Which Insurance Does the Law Require?
Car Insurance
If you drive on UK roads, you must have at least third party insurance. Comprehensive cover often costs about the same, so it is worth comparing all levels.
Buildings Insurance If You Have a Mortgage
Buildings insurance is not a legal requirement, but almost every mortgage lender insists on it. It covers the structure of your home against things like fire, flood and subsidence.
Cover Most People Should Consider
Contents Insurance
Contents insurance covers your belongings against theft, fire and water damage. It is useful for homeowners and renters alike, because your landlord’s insurance will not cover your things.
Life Insurance
Life insurance pays out if you die during the policy. If anyone relies on your income, such as a partner or children, it is one of the most important policies you can have. Term life insurance, which covers a set number of years, is usually the most affordable type.
Income Protection
Income protection pays a portion of your income if you cannot work because of illness or injury. It is especially valuable if you are self employed or your employer only offers statutory sick pay.
Critical Illness Cover
This pays a lump sum if a doctor diagnoses you with a specific serious illness listed in the policy. It can be useful, but always check exactly which conditions the policy covers.
Insurance That Depends on Your Situation
| Type of insurance | Who it suits | Worth knowing |
|---|---|---|
| Travel insurance | Anyone going abroad | Buy it as soon as you book, so cancellation is covered |
| Pet insurance | Pet owners | Lifetime cover protects you from ongoing vet bills |
| Landlord insurance | Anyone letting property | Standard home insurance usually will not cover lettings |
| Business insurance | Business owners and freelancers | Public liability and professional indemnity are common |
My guide to the cost of owning a pet explains the different types of pet cover.
Policies You Can Often Skip
- Extended warranties: often expensive, and you may already have protection under consumer law.
- Gadget insurance: check whether your contents policy already covers your phone and laptop.
- Payment protection sold with loans: make sure it is something you actually need before agreeing.
- Overlapping policies: many people pay twice for the same cover, such as breakdown cover through both a bank account and a separate policy.
How to Save Money on Insurance
Compare Every Year
Since 2022, home and car insurers have not been allowed to charge renewing customers more than new customers for the same policy. Even so, prices vary a lot between insurers, so it still pays to compare at renewal.
Choose a Sensible Excess
A higher excess usually means a lower premium. Just make sure you could afford to pay it if you claimed.
Pay Annually if You Can
Paying monthly is often more expensive, because it can work like a loan with interest added.
Check What You Already Have
Packaged bank accounts and employer benefits sometimes include travel, life or income protection cover.
If Something Goes Wrong
If an insurer rejects a claim unfairly, complain to them first. If you are not happy with their final response, you can take your complaint to the Financial Ombudsman Service for free.
If an insurer turns down a claim unfairly, you can complain to the Financial Ombudsman Service for free.
Insurance: Common Questions
Which insurance is a legal requirement?
Car insurance if you drive, and employers’ liability insurance if you employ staff. If you have a mortgage, your lender will also require buildings insurance.
Is income protection worth it?
For many people, yes. It pays part of your income if illness or injury stops you working, which matters if you don’t have generous sick pay.
How can I save on insurance?
Compare quotes at every renewal rather than letting it roll over. Paying annually instead of monthly also usually works out cheaper.
Do I Need Life Insurance if I Have No Children?
Not always. Life insurance mainly protects people who rely on your income, such as a partner or children, or covers a joint mortgage. If nobody depends on you financially, income protection may matter more.
What Is an Insurance Excess?
It is the part of any claim you pay yourself. For example, with a £250 excess, a £1,000 claim pays out £750. A higher excess usually lowers your premium, but make sure you could afford it if you needed to claim.
Is Mortgage Payment Protection Insurance Worth It?
It can help if you would struggle to pay your mortgage after losing your job or falling ill. However, cover often only lasts a year or two and has exclusions, so compare it with income protection before buying.
Can I Cancel an Insurance Policy?
Usually, yes. Most policies have a 14 day cooling off period, during which you can cancel for a full refund. After that, you can still cancel, but you may pay a fee.
The Bottom Line
The types of insurance UK households need depend on your situation. Car insurance is a legal must if you drive, and most mortgage lenders insist on buildings cover. Beyond that, prioritise policies that protect your income and your family, and be wary of cover you do not really need. For a wider plan, see my guide to wealth preservation strategies.
Content on IceburgWealth.com is for general information only and is not financial advice. I am not a regulated financial adviser, and tax rules and figures can change. Always do your own research and consider speaking to a qualified adviser before making any financial decision.
This article is part of our Saving and Budgeting Guide, where you will find every related article in one place.
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