Pricing and Coverage
The price you pay for insurance is determined by what the insurance covers. You may purchase insurance for your household contents, including furniture and electrical goods, that specifically covers you for the value of those items at the time of your claim. If you do claim, you will have to come to an agreement with the insurance company concerning the value of the items, and this will be considerably less than the cost of replacing the items with new ones. You can pay more for your insurance and purchase a new-for-old policy, which provides insurance cover that pays the cost of replacing items with new ones.
Inclusions and Exclusions
When you purchase insurance, you receive an insurance contract. Insurance contracts are known as policies, and an insurance policy contains details of what is covered by the policy and crucially, what is not covered by the policy. Insurance premiums, meaning the amount paid to the insurance company for providing insurance cover, are set according to the degree of risk involved, and you can lower the cost of an insurance policy by agreeing to exclude certain events that would otherwise be covered by the policy. For example, when you purchase auto insurance, you may agree that you are not covered for theft of your vehicle if you leave it in a public place with the doors and windows unlocked. This exclusion will be listed specifically in the insurance policy document, and insurance cover is not provided for this event. Some exclusions are common to most policies, such as the exclusion of insurance cover from auto policies for events that happen when you are over the legal alcohol consumption limit.
If you have taken out an insurance policy that includes deductibles, you do not have insurance cover that will reimburse you for the entire financial amount of any insured loss. An insurance deductible is an amount that you must cover from your own resources before insurance is paid on any claim. For example, you may have taken out building insurance, to protect against damage to your home. If the policy contains a deductible of $1,000, and you sustain damage to your property that will cost $500 to fix, the insurance company does not have to reimburse you, as you are responsible for the first $1,000 of any claim. You only have insurance cover for amounts above $1,000. Typically, the higher the deductible amount written into a policy, the lower the insurance premium you have to pay. In effect, you are sharing part of the risk with the insurer.
An insurance policy that includes a benefit-limit is usually less expensive to buy than a policy without limit. A limit puts a finite cap on what the insurance company has to pay in the event of a claim, and you only have insurance cover up to that limit. If you suffer loss or damage that goes beyond the insurance limit, you must cover that portion of the risk from your own resources. Unlike a deductible, the benefit limit does not exclude a specific amount of the claim that you have to pay before the insurance cover begins, but it does mean that you may not have adequate insurance cover to pay for all eventualities. For example, if you insure a building against fire, and the policy contains a limit that is less than it would take to clear the ground and rebuild the premises, you are not covered for the worst-case eventuality, being the total destruction of the building. You will have to add your own money to the insurance payout to rebuild the premises.