We buy travel insurance for the same reason we purchase any insurance policy: to cover us when things go wrong. You may not be very impressed by the National Health Service but, remember, not every country has a free health service and you could find yourself facing a hefty bill if you fall ill abroad. Then there are the problems which are not life-threatening but still stressful - lost luggage, cancelled flights and so on. The bottom line is it makes sense to take out an insurance policy unless you’re prepared to find yourself out-of-pocket as a result of any holiday mishaps. However, if you’re only going to be travelling within the UK you are unlikely to need holiday insurance, exception possibly cancellation cover in case you need to cancel a prebooked holiday.
Your travel insurance policy should cover: medical expenses, personal liability, cancellation and curtailment, loss of baggage and theft. The two most important parts of the cover are the medical expenses to cover the cost of any emergency medical treatment you may require and personal liability - this covers you in the event that you’re faced with a bill for any damage or injury you cause to anyone else or their property while abroad. You should also have cover to pay out a lump sum if you’re injured or if you die while abroad. The amount of insurance for each of these categories obviously differs from policy to policy, generally the cheaper the policy, the lower the cover. Some policies offer a range of value-added services, such as replacement vehicles, house-watching and so on. It may also be worthwhile choosing a policy which offers an international helpline, especially if you are going to a country where English is not readily spoken.
UK Insurance Web Guide