Get The Insurance You Really Need

If you're one of the many people that pay a fortune for a multitude of insurance policies, is it time to assess what you need?

Have you ever taken five minutes to look at your bank statements to see where your money goes each month? Mortgage or rent payments, council tax, loan repayments and bills are bound to take the biggest chunk of your income, but you're also bound to have the odd insurance policy in amongst them. Some of us have a whole list of them. But the question is - which ones do we really need?

Insurance, although costly, has an important role to play. If you have dependents, for example, you should really have life cover. This would pay out a lump sum should something happen to you, that should at least be enough to pay off the mortgage and any debts. However, if you don't have anyone dependent on your income, life cover is a waste of money.

Of course, there are ways to provide cover, should the worst happen, that don't involve insurance companies - which is called "self-insurance". By setting aside some money each month into an account earmarked for a specific purpose, you should hopefully be able to build up a decent sized sum of money, ready in case it should it ever be needed. The advantage here is that your "premiums" are paid to yourself - should you never need to call on this money you'll still have the cash, rather than an insurance company. Pet insurance is often treated in this way - cover for animals can be surprisingly expensive and a lot of people prefer to save a little each month themselves instead.

Of course, there are problems with this idea. For a start, you can't predict the future. For example, if you'd been setting aside £10 a month for a year for your cat and Tiddles suddenly broke a leg requiring thousands of pounds of vet care, that £120 won't go very far. Paying that as an insurance premium would (hopefully) mean you could claim for all treatment - saving you a fortune.

However, on the flip side, if Tiddles lived for 10 years with barely a cold, self -insurance would mean you could have a lump sum of around £1,500 to play with (assuming 5% growth after tax and charges).

It's therefore worth choosing the types of insurance you take out carefully. Think about your lifestyle and what is important to you. You then need to look at the insurance policies available, what they pay out and how much their premiums cost.

Some insurance is essential - such as house and car insurance. Life insurance, too, for those with dependents could be considered vital - a 30-year-old man could get £250,000 of life cover for a relatively low outlay of £20 a month. You can even slash this cost by buying Pension Term Assurance - life cover that is linked to your pension, meaning you can benefit from tax relief on your premiums which could save you up to 35%. Alternatively, Family Income Benefit would provide your family with an income in the event of your death, and its premiums are even cheaper than life term assurance.

Other types of cover such as critical illness and pet insurance are a personal thing. Income protection insurance tends to have expensive premiums, but could be worth its weight in gold if you're uncertain about your job. And although gas central heating cover for older houses can be extremely useful, those with new systems may find self insurance a far better option.

You can get insurance for practically anything these days - from being abducted by aliens to getting a hole in one at golf - insurance companies will always be happy to take your money! It's up to you to question which types of cover you need.

However, it's worth remembering that insurance can do more than just provide cash in the event of a disaster, having it can actually help you sleep better at night.

Find the cover you need, right here at the Motley Fool.