Don't get so carried away with sorting out your future that you forget what might be just around the corner.

Yes… it's time to talk about insurance.

Insurance can protect you when things go wrong. When you buy an insurance policy, you are paying to be insured against specified risks for a specified time. If the worst happens during that time, and you are covered by the terms of the policy, the policy will pay out.

Insurance certainly has a boring reputation, and you might think that you could easily spend the money for all those premiums on something a lot more fun. Well, just think about how you'd cope should you have to replace all your stuff in one go. Or if you suddenly lost your income because you were ill and couldn't work. Yes, you'd definitely appreciate that boring old insurance policy should you need to call on it.

There's another side of protection to consider and that's protecting what you have from the taxman. This isn't sharp practice, it's common sense. You can read about some of the simple things you can do in the Manage your tax feature.

But what should you think about protecting with insurance?

Your home

If you own your own home, your mortgage company is going to insist on buildings insurance – protection for your home and the land it stands on against risks such as fire, subsidence and flood. Even if you've paid off the mortgage, your home is probably going to be your most valuable asset. To see that value destroyed is one risk you don't want to run.

If you're renting, your landlord will most likely have this one covered. You should check your lease, just to make sure.

Your possessions

It's really easy to underestimate just how much stuff we've got. Could you replace all your things if they were stolen or damaged by fire?

Think about it… how much would it cost to replace all your CDs and DVDs? What about your furniture? Your sofa may be old and saggy, but a new one would cost hundreds of pounds. And we haven't even started on the expensive one-off items yet, such as jewellery, the computer or the TV.

All things considered, contents insurance is definitely worthwhile, whether you're renting or a homeowner. Most people under insure, so think about how much it would cost to replace your stuff and make sure you're covered for the right amount. Options well worth thinking about are 'new for old' cover and protection against accidental damage and for your belongings outside the home.

Your car

If you've got a car, some sort of motor insurance is a legal requirement. So, it's just a question of what kind.

The most basic sort of motor insurance is third-party – should you have an accident, it protects the other people involved. However, if anything happens to your car, too bad. You won't be covered. Third party, fire and theft insurance is an obvious step up. Fully comprehensive insurance covers you for everything and is always the best bet if you have a new car.

Yourself

What's the most important thing you need to protect? You!

How would you pay the mortgage/rent if you became ill and unable to work? If you have dependants, how would they cope financially if you died suddenly?

This all might sound rather gloomy but we do need to think about such things. Fortunately, insurance companies are more than happy to provide some options.

One is income protection insurance. This will give you a monthly income if you have to stop work for a while because you are sick or injured. If you're self-employed, you should definitely consider it. However, always check the small print for exclusions; some policies may also not pay out if you can't do your usual job but can do another type of work.

Critical illness cover gives you a tax-free lump sum should you develop a serious illness such as cancer. Again, you should check the small print to see which illnesses are covered – not all of them will be.

If you have people financially dependent on you, you should consider life insurance. This pays out a lump sum when you die.

Life insurance is sometimes available through pension schemes. Going this route means that you'll get tax relief on your premiums (subject to certain limits, as you might expect), but there are some restrictions on the types available. As usual, you should speak to your financial adviser to get further information and see what's the best option for you.

With insurance, it pays to shop around. Internet comparison sites make it quick and easy to compare different options – you'll find some in the info centre. You should also check your existing policies and see if they cover you for the right things – don't just automatically renew that contents insurance every year.

Although insurance can seem like an unnecessary expense, in the long run it could save you money. And don't underestimate another benefit: that all-important peace of mind.

Read about managing your tax

 

Tax rules may change in the future.

Building insurance

Building Insurance is insurance for your home and the land it stands on.

See more terms from the glossary

Income protection insurance

Insurance that gives you a monthly income if you have to stop work because you're sick or injured.

See more terms from the glossary

Critical illness cover

Insurance that gives you a tax-free lump sum should you develop a serious illness such as cancer.

See more terms from the glossary

Life insurance

Life insurance pays out a lump sum to your dependents when you die.