What is insurance?
Insurance is a way of protecting yourself and your belongings against a particular adverse event, for example, a burglary, or losing your income because of illness. If this happens, insurance will pay out an agreed amount, or an amount to cover the damage, as appropriate. Of course, it may not happen, but you have to decide whether you're willing or able to take that risk. Some insurance, like motor insurance, is compulsory – you have to have it if you drive

How does it work?
The amount you pay for insurance will be based on the information you give the insurance company (the underwriter) and the type of risk you want to insure. Insurance companies use underwriting criteria, for example, where you live, if you smoke or what type of activity you would like to be covered to help them work out the price (premium) of the insurance.

You might find that some insurance companies may not be able to give you a price for the cover you need. This could be because that particular insurance company doesn't offer insurance for the type of risk you want to insure (for example things like antiques or vintage cars). If you want this type of insurance you might have to go to a company that specialises in this type of insurance cover.

The insurance company agrees to pay out if the event which you're insuring against happens. For example, your travel insurance policy may pay out for loss of luggage. It is important that you give the insurance company the correct information when buying insurance as incorrect information might affect your claim.

Most insurance lasts for one year at a time and you can renew your policy when it ends, or go somewhere else for a better deal. But make sure you don't lose out by switching and always check that a new policy covers what you need it for. Always compare what's covered by a policy, not just the price. Some might be cheaper than others, but they may not offer the same level of protection.