Insurance protects your finances when something unexpected happens by, for example, paying you if your home is damaged by fire or meeting your medical bills if you unexpectedly fall ill.
The amount of money you pay for insurance is called the premium. Insurers set their premiums so they will have a big enough pool of money to pay out all the claims, cover their costs and earn a profit.
Insurers look at the information you give them. They use this to estimate how likely you are to claim. They also check how often other people in similar situations have claimed before. They then decide what premium to charge you. If the risk of you claiming on insurance looks higher than average, the insurer may do one of the following things:
- They may charge you a higher premium than the standard rate – the company needs to make sure this increase is proportionate to the increased risk of you making a claim.
- They may apply an excess – this is where you need to pay a certain amount of money towards any claim you make. If you choose a policy with a higher excess, the premium may be cheaper.
- They may apply exclusions – this is where the company refuses to cover the types of claim it thinks you’re most likely to make. If you choose a policy with exclusions based on your medical history, make sure you understand which claims will and won’t be paid.
- They may refuse to insure you at all.
To assess the risk of you claiming, insurers will ask you questions.
With health insurance or life insurance, they may want to see your medical reports or ask you to have a medical examination. The insurer, not you, pays for medical reports and examinations.
If you don’t answer the questions fully and truthfully, the insurer may refuse to pay out if you make a claim later on.
You don’t have to agree to medical reports or examinations, but if the insurer doesn’t have enough information to assess your application, they may refuse to cover you.
The insurance market is competitive and premiums vary from one insurer to another. So it’s important to shop around, especially if you have a medical condition. Insurers call this having a pre-existing medical condition. An insurance broker can help you compare deals from different companies.
To find an insurance broker, contact the British Insurance Brokers’ Association.