# Insurance — what's worth paying for > Protection · Published 4 March 2026 · Last updated 4 July 2026 Canonical HTML: https://moneyguide.org.uk/insurance/ Markdown mirror: https://moneyguide.org.uk/insurance/guide.md ## Quick answer Insurance is for risks you couldn't afford to absorb yourself. Insurance is for risks you couldn't afford to absorb yourself. Some kinds are essential, some are useful, and some are pure profit margin for the insurer. This guide helps you sort which is which. ## Key facts - Buildings insurance is required by mortgage lenders; car insurance (at least third-party) is a legal requirement to keep a vehicle on a UK road. - Insurers must offer renewal prices that are no higher than the equivalent new-customer price — the FCA's 'loyalty penalty' rules in force since January 2022. - Auto-renewing without checking still typically costs £50–£200/year more than reshopping across three comparison sites and the insurer direct. - Paying monthly is a credit agreement and typically adds 15–35% APR vs paying annually. - The Financial Services Compensation Scheme covers UK-authorised insurers if they fail — 100% for compulsory insurance (e.g. third-party motor) and 90% for most other policies, with no upper cap. - Term life insurance written 'in trust' falls outside your estate for Inheritance Tax — a single free form most insurers will sort for you. ## The insurance you almost certainly need Three policies are essential for most UK adults. If you only ever buy three insurance products in your life, these are the three. - **Car insurance** — A legal requirement for any vehicle kept on a public road. Comprehensive is often cheaper than third-party-only — always quote both. - **Buildings insurance** — Required by mortgage lenders. Covers the structure of the property against fire, flood and similar perils. Rebuild cost — not market value — is what you insure for. - **Life insurance — if anyone depends on your income** — Term life is cheap, simple and the right product for almost everyone. Cover the years you'd need to replace your salary. See our life insurance basics guide for how much cover and whether to write the policy in trust. ## Useful but often skipped These aren't required by law, but the consequences of going without them are big. - **Contents insurance** — Replacing the contents of a flat from scratch is shockingly expensive. Even tenants need this. - **Income protection** — Pays a monthly income if illness or injury stops you working. Usually more important than critical illness cover for working-age adults. - **Travel insurance** — Buy when you book, not when you fly — cancellation cover starts immediately. Always check medical cover limits for your destination. Our travel insurance directory lists FCA-authorised insurers and what to compare before you buy. ## Insurance that's usually a waste If you can comfortably absorb the cost of the item being replaced, paying someone else to insure it costs you on average. Extended warranties on consumer electronics, mobile-phone insurance bought in-store, and most appliance protection plans fall into this category. ## How to get a fair price Quote at least three comparison sites — none covers the whole market. Always quote your existing insurer direct, and never auto-renew without checking: the FCA banned 'price walking' in 2022, but renewal quotes still often beat the new-customer price only by a thin margin. Quote 20–26 days before renewal: insurers typically price quotes as 'new business' at this point, and prices then rise as renewal nears. Cancel any extras you don't want (breakdown, hire car, key cover) and re-add them only if the bundle is cheaper than the standalone alternative. ## Life insurance: term vs whole-of-life Term life pays out only if you die within a fixed term (typically 20–30 years). It's cheap because most policies never pay out — but the right product if your goal is to replace lost income for a fixed period like dependent children or a mortgage. See our term vs whole-of-life comparison for when permanent cover makes sense. Whole-of-life policies pay out whenever you die, so premiums are much higher. They're rarely useful for income replacement; their main use case is funding Inheritance Tax on a known liability. Our whole-of-life guide explains guaranteed vs investment-linked policies and over-50s plans. ## Critical illness vs income protection Both pay out if you can't work due to illness — but very differently. - **Critical illness** — Pays a tax-free lump sum on diagnosis of one of a defined list of conditions (typically cancer, heart attack, stroke, MS). Useful for clearing a mortgage or one-off costs, but the conditions and severity definitions matter enormously — read the policy wording, not the brochure. See our critical illness cover guide for what is and is not covered. - **Income protection** — Pays a monthly income (usually 50–65% of pre-tax salary) if you're unable to work due to any illness or injury, after a deferred period (typically 1–6 months). Lower headline payout, but covers a far wider set of real-world reasons people stop working. Most financial advisers rate it more useful than critical illness cover. ## Car insurance: how to lower the premium without dropping cover Most premium reduction comes from data, not policy choices. Pay annually, add a more experienced named driver (never 'fronting' — that's fraud), agree a realistic annual mileage, use a secure overnight parking address, and add anti-theft devices that the insurer asks about. Black-box (telematics) policies are usually cheapest for new drivers and people with convictions. Multi-car policies and 'pay as you drive' subscriptions are worth quoting alongside conventional cover. No-claims discount transfers between UK insurers — keep your renewal letter as proof. ## Making a claim well Report incidents quickly — most policies require notification within 24–48 hours, even if you don't want to claim. Take photos, keep receipts, and don't admit liability at the scene. For motor claims, exchange details but say only what's factual. If the insurer rejects your claim or offers a low settlement: complain in writing, get the insurer's final response (it has 8 weeks), then escalate to the Financial Ombudsman within 6 months. The FOS is free, independent and decides claims up to £430,000 (April 2025 limit) — and it overturns roughly a third of insurer decisions referred to it. ## Frequently asked questions ### Should I pay annually or monthly? Paying annually is almost always cheaper — monthly is a credit agreement and typically charges APR between 15% and 35%. Pay annually if you can. ### What is excess and how should I set it? The amount you pay yourself before the insurer contributes. Higher excess = lower premium. Set it at a level you could realistically pay tomorrow if you had to claim. ### Does no-claims discount transfer between insurers? Yes. Most UK car insurers honour each other's no-claims discount — keep your renewal letter as proof. ### What is dual pricing and is it still allowed? Dual pricing — charging existing customers more than new ones for the same policy — was banned by the FCA in January 2022 for home and motor insurance. Insurers must now offer renewal prices no higher than the equivalent new-customer price. It hasn't eliminated the case for shopping around, but the gap is smaller than it used to be. ### What does 'in trust' mean for life insurance? Writing a life policy in trust means the payout goes directly to your chosen beneficiaries rather than through your estate. Two benefits: it pays out within days rather than waiting for probate (often months), and it sits outside your estate for Inheritance Tax purposes. Every major UK life insurer provides the trust paperwork free — just ask. ### Are 'gadget' or mobile phone insurance policies worth it? Usually not. Premiums plus excesses often exceed the cost of replacing the device over its working life, and policies typically exclude loss outside the home, accidental damage in specific circumstances, or theft without a police reference number. Check whether your packaged bank account, home contents policy or travel insurance already covers the device first. ### Is breakdown cover worth it? If you depend on the car for work, or drive an older vehicle, basic Roadside + Recovery cover usually pays for itself in a single callout. Many packaged bank accounts include it free, and some manufacturer warranties bundle 1–3 years' breakdown cover with new cars — check before buying separately. See our breakdown cover guide for AA, RAC and Green Flag tiers. ## Related guides - [/mortgages/](https://moneyguide.org.uk/mortgages/) - [/pensions/](https://moneyguide.org.uk/pensions/) - [/savings/](https://moneyguide.org.uk/savings/) --- Independent UK money guidance from [Money Guide](https://moneyguide.org.uk). Information only — not regulated financial advice.