Many of us have insurance and we buy it for different reasons. It can be expensive though and so you may wonder whether it is actually worth buying it. There are different reasons for buying insurance and it is good to look carefully at them to make sure that they are good reasons.
Because it is Required by Law
If you own a motor vehicle then it is required by law that you hold insurance for it. This is third party insurance which will cover the costs of any damage that you cause to other people property. This means, that if you have any sort of accident and either damage another vehicle or building or hurt a person, your insurance will pay out to cover the cost of repairs as well as compensation if needed. It is the law to have this basic insurance cover and if you do not have it you will get fined if you are caught and you can even go to prison. It is therefore well worth paying for this insurance!
Because it is Required by a Lender
If you have a mortgage then your lender will require that you have two types of insurance. You will need life insurance so if you die before the mortgage is paid off, the insurance will pay it for you. The lender requires this because they want to make sure that they get their money. It also protects any family living in the home as it means that they will not lose their home if the mortgage holder dies. The lender will also require you to have buildings insurance on the property. This means that if the property is damaged, perhaps in a fire, flood, from subsidence or something like this, there is insurance to cover the cost of the repair. They want this so that they know the property will not lose value. If you do not keep up with mortgage repayments, they can repossess the property and sell it to make back the money that they are owed. If the building is not in a good state then the value may be very low and they will not get their money back. Although, it is not law to have these insurances, when you sign your mortgage agreement you will be agreeing to having them and therefore you do need to take them out.
To give your Peace of Mind
Some people like insurance to give them peace of mind. For example, they may insure the contents of their home against theft or damage as they know they will not be able to afford to replace them otherwise and so they feel comfortable knowing that the insurance will pay for this if necessary. So, they will insurance expensive items, such as their car, home, contents, art, antiques etc just in case. Whether you feel this is necessary will be up to you. Think about whether you could afford to replace items yourself and whether you would want or need to replace them.
Because Everyone else has it
Some people take out insurance because others have it and so they feel they should. It is worth asking people why they have that insurance before you take it out and then you will be able to calculate whether you think that it will give you good value for money.
Because you Think you Need it
You may take out insurance because you think you need it. Find out whether you have to have it and then decide whether it is necessary. For example, some people might have insurance to cover costs when they die. However, if they have savings which would be enough to cover those costs, then also paying into an insurance each month, could be a waste of money. They could be saving that money and there could be more for others to inherit that way.