Insurance you need and insurance you do not

Insurance is a transfer of risk at a price, which means it is worth buying when the loss would be unbearable and not worth buying when it would merely be annoying.

The principle

Which sorts almost everything.

Insure against events that would be financially catastrophic and that you could not absorb.

Self-insure — meaning absorb the cost yourself, ideally from savings — against events that would be inconvenient.

Because insurance necessarily costs more than the expected loss on average, since the insurer must cover costs and profit.

Which means buying it for small losses is a losing proposition by construction, and buying it for catastrophic ones is rational despite that.

What most households genuinely need

The short list.

Buildings insurance if you own property, which is generally a mortgage condition and which covers a loss you could not absorb.

Vehicle insurance to the legally required minimum, and comprehensive where the vehicle's value justifies it.

Life insurance where others depend on your income — with dependants or a mortgage.

Income protection, which addresses the largest financial risk most working people face and is substantially under-bought relative to life insurance.

Contents insurance, where replacing everything would be unaffordable.

Travel insurance with adequate medical cover including repatriation, which is the classic catastrophic risk.

Professional indemnity and public liability where your work requires it.

And employer-provided cover understood and used, since many people hold protection they do not know about.

What is generally poor value

Where the loss is absorbable.

Extended warranties on appliances and electronics, which are consistently identified as poor value and which frequently duplicate statutory consumer rights.

Mobile phone insurance, where the premium and excess over a contract term approach the device cost.

Pet insurance is genuinely arguable — veterinary costs can be substantial and unaffordable, which makes it a legitimate purchase for many, while lifetime versus annual policy structures matter enormously and are poorly understood.

Payment protection on individual products, which has a poor history.

Boiler and appliance cover, where the annual cost over years frequently exceeds the repairs.

Identity theft insurance, where the practical protections are largely free.

And any policy with an excess close to the value of the item insured.

The excess lever

Underused.

Raising the excess reduces the premium, sometimes substantially.

Which is rational for anyone with savings, since you are self-insuring the first portion of any loss — exactly the portion you could absorb.

The check: could you pay the excess tomorrow without borrowing?

If yes, raising it converts insurance from covering everything to covering what matters, at a lower price.

Getting the price down

Practical.

Never accept an auto-renewal, since renewal pricing is systematically worse than new-customer pricing and regulators in several markets have intervened.

Compare, then call the existing insurer with the quote, which frequently produces a match.

Pay annually rather than monthly where possible, since monthly payment is generally credit at a substantial rate.

Check what is bundled with bank accounts and employers before buying separately.

Avoid unnecessary add-ons.

And be accurate about details, since inaccuracy to reduce the premium invalidates the policy when you claim.

Non-disclosure

The commonest reason claims fail.

You must disclose what is asked accurately, and in some jurisdictions must volunteer material facts.

Common failures: pre-existing medical conditions on travel policies; modifications and named drivers on vehicle policies; previous claims; occupation; and business use of a home or vehicle.

Non-disclosure can invalidate the entire policy rather than only the related part.

Which means the ten minutes spent answering accurately is the most valuable part of buying insurance.

Reading the exclusions

Where the product is defined.

Every policy is defined by what it excludes rather than by what the marketing describes.

Common exclusions: wear and tear, gradual damage, pre-existing conditions, hazardous activities, alcohol-related incidents, unoccupied property beyond a period, and failure to take reasonable care.

Reading the exclusions before buying takes fifteen minutes and prevents discovering them at the point of claim.

Underinsurance

A common and expensive error.

Insuring a property or contents for less than the full rebuild or replacement value can result in claims being scaled down proportionally, even for partial losses.

Rebuild cost is not market value, and is calculated differently.

Contents values are routinely underestimated — the honest exercise is to total what it would cost to replace everything.

And values should be reviewed periodically, since costs rise.

Claiming

Practical.

Report promptly, since delay can prejudice a claim.

Keep evidence: photographs, receipts, crime reference numbers.

Do not dispose of damaged items before the insurer has assessed them.

Keep a record of every conversation with names and dates.

And if a claim is refused, complain formally and escalate to the ombudsman or equivalent, which is free and which overturns a meaningful proportion of decisions.

General information only, not financial or insurance advice. Products and regulation vary by country — read policy documents and consult a regulated adviser.