Insurance basic training
We thought it might be useful to kick off with the core elements of insurance policies that may be useful for members of the British Armed Forces to understand… just to get the juices flowing.
Stand by your cots and get ready to have your minds blown!!
Insurance. Yeah, we know! Contain yourself!
Before we dive into specific types of insurance in our next blogs, we thought it would be useful to explain a little bit about what insurance actually is, broadly how contracts work and try to help you understand why the commonly held belief that insurers are all crooks might be a little harsh.
So, what is insurance?
Quite simply, it’s an agreement (a ‘contract’ or ‘policy’) to pass specified risk from you to a company in exchange for a payment (premium). Some insurance policies are compulsory (like car insurance). Other insurance policies are entirely your choice. There are a plethora of insurance policies available for those in the British Armed Forces.
Let’s use a mobile phone as an example of optional insurance.
When you buy a mobile phone, there is a real risk that you will drop it. Phones are expensive and, nowadays, difficult to repair.
So, you can take out insurance in case something goes sideways. If you don’t have an insurance policy, you will need to cover the cost of a replacement phone or, if possible, for the repair. If you insure your phone, then hopefully your insurer covers the cost of repair or replacement.
Now, we said ‘hopefully’. And here’s the rub.
Insurers don’t always pay out. The common belief is that this is because insurers are crooks. Massive companies that take your money and promise that you are covered and then use any excuse not to pay you.
Actually, that just isn’t true. The reason that insurance agreements are called contracts is because they are just that. Legal contracts. So, if the insurer is legally obligated to pay out, how do they get away with refusing to pay?
The actual reason is to protect themselves…and you. Most insurance works on the basis of ‘pooling’ risk. You take lots of people with a similar risk and group them together.
Then the premiums collected from that group are used to pay any claims.
Sharing the risk helps the insurer keep premiums at a reasonable level. Some people might present a higher risk (you have a more expensive phone…or your phone has more accidents) and so pay a higher premium. But you are all in it together. The group are basically working together to build up a fund which they can claim from.
However, the insurer needs to have control over the amount of claims they could be liable for because if the amount they are paying out in claims is unlimited, then premiums will keep rising until they are unaffordable…for people just like you. Plus, the insurer might not be able to pay their own costs and make a profit (like all businesses need to be able to do).
So, insurers place conditions, restrictions and limits on insurance policies to manage the number, or maybe the size, of potential claims.
These conditions are laid out up front in your contract.
Again, using our mobile phone example, imagine you have an insurance policy that covers your £1000 iPhone in case you accidentally damage it or lose it. In your group of policyholders:
- Someone with a phone that cost them £200 from Amazon claims that it was signed by Kevin Hart and so they are claiming £10k
- A long-term policyholder keeps claiming for accidental damage which renders their phone irreparable…always the day after the latest Samsung Galaxy model lands, and now they want to get the latest version.
- A dad gives his phone to his daughter and then claims that he accidentally dropped it in the canal whilst fishing and so he needs a new phone.
- A claim comes in from a policyholder who dropped their phone on a glass table, and they want to be paid for a new phone and another £625 to replace the table as well.
You’re not gonna be thrilled when you come to renew and your premium doubles, are you?
So, insurers work hard to create insurance policies with clear conditions that help them to pay reasonable, legitimate claims. But they will work hard to ensure that they only pay claims that fall inside the published policy conditions.
Tips that might be worth considering
- If insurance is optional, think about what your likely risk levels might be. Let’s take personal accident insurance. If you work on a computer from home, your risk of an accident might be much lower than if you have a demanding, physical job that requires lots of exercise…ring any bells?? If the risk level is high, then it would make sense to give more thought to insurance options.
- Read the small print. Understand the limits and conditions and know what you are buying. Does this policy cover the sort of risk that you feel that you could be exposed to?
- Be accurate. Being tempted to downplay or underestimate to try and make your insurance cheaper doesn’t often end well in the event you need to claim. If the information you were asked to provide is inaccurate, then your entire policy might be invalidated.
- Ask for help. If you are not sure, find someone you can trust with knowledge on the topic and ask them. Research online. But again, use reputable sources.
Being in the British Armed Forces means insurance is likely the last thing you’re worrying about; however, by understanding how insurance policies work generally, you’re setting yourself up to be in a great position to make educated decisions when a time comes where you may start considering taking out an insurance policy, such as personal accident insurance.
Here are 2 articles from reputable sources on insurance basics if you wish to do more research:
And catch our next blogs, where we move away from general information on insurance to breaking down specific insurance types, such as buildings and contents insurance, and how these are relevant to members of the British Armed Forces.
