Despite almost all of us taking out home and car insurance policies, the average person’s knowledge of these essential products remains surprisingly low. Whether it’s what’s actually covered, the terms of the policy or the way in which insurers settle claims, many people think insurers are out to trip them up at every turn.
Many complaints, and much heartache and anger, could be avoided if more people understood how their policy works. Adrian Flux Insurance Services highlights 10 of the most common insurance misconceptions.
1. Cancelling your policy early.
Most people who cancel their car insurance policy mid-term are usually shocked to learn that they are not always entitled to a pro-rata return premium – that is, they often end up paying for more than the period of cover they’ve had. This is because of the costs involved in setting up and cancelling the policy, and there are penalties for leaving the contract early just like with a mobile phone contract. Simply cancelling a direct debit agreement will often result in the insured actually owing the insurance company money. Some insurers do now allow pro-rata returns, but everyone should check their insurer’s short-term rates before taking out the policy if they think they may be selling their car during the year. Early cancellations of home insurance policies, however, are usually settled on a pro-rata basis.
2. The value of your car.
Unless you have an agreed value policy, usually only provided on classic car policies, any total loss claim for your vehicle will be settled on a market value basis. So if you declare on your quote that your car is worth £12,000, it doesn’t mean that is the amount insurers will pay out. Settlement is based on published guides, such as Glass’s Guide, and similar cars for sale available at the time of the loss. An agreed value is usually backed up by photographs, and either a self-assessment of the vehicle’s condition or an independent valuation, but even then the vehicle will be inspected and, if the actual condition has changed since the valuation was made, claimants may occasionally be offered a lower amount.
Underinsurance can be a problem on your home insurance if you have underestimated the value of your contents, or the rebuilding cost of your home. Let’s say you’ve covered your contents for £20,000, but its actual value is £40,000. If you suffer a claim of £10,000 and an assessor judges that you are underinsured, your insurer will only pay out £5,000, in the same ratio to the amount of underinsurance.
4. Does buying online always save you money?
In short, no. Obviously, sometimes your best quote will come from an online provider, but many specialist brokers like Adrian Flux provide their best quotes over the phone, when they have more of a chance to fully understand the risk and ask a range of additional questions not provided for on online forms. This is especially true if you have motoring or criminal convictions, a modified car, a home of non standard construction, or anything that does not fit the standard risks most mainstream insurers are looking for.
5. The reasonable care clause.
Almost all insurance policies include a clause that says you must take reasonable precautions to prevent a claim. So if you know your home has faulty wiring, don’t get it fixed, and it causes a fire, you may find your claim is refused, similarly fires caused by an unsweptchimney. Similarly, some home insurance cover requires proof of forced entry for burglary claims – so if you leave home without locking your front door you could have problems. With car insurance, if you have an accident while driving on a set of bald tyres, although any third party damage will be covered, damage to your own car may well not be covered.
6. Driving other cars.
Many people think they’re automatically covered to drive other cars under their own comprehensive policy. This is true in some cases, but not all, and even where this cover is included you are normally only insured to drive the other car on a third party basis, so damage to the car in a fault accident is not covered – worth remembering the next time you let someone take a car you’re selling for a test drive.
7. Is third party cover always cheaper?
Not any more. If you drive an old banger worth £500 it may be tempting to take out third party only cover and, many years ago, your premium would probably have been much cheaper. But partly thanks to increasing personal injury claims, it’s the third party element of a claim that usually costs the insurer far more than paying for any damage to your car. Insurers also may believe that if you don’t want to cover damage to your own vehicle, you are less likely to look after it and represent a greater risk. Third party only rates have increased over the years as a result.
8. Your no claims bonus and excess.
When you make a claim under your car insurance policy, even if it was not your fault and you have the third party’s details, you may have to pay the excess (the uninsured amount of your claim) to the garage where you have your car repaired. Your insurers will then try to recover their costs from the third party’s insurers, who may dispute their client’s liability. At this point, your no claims bonus will be affected and may be reduced. Only when your insurers have recovered their costs from the third party’s insurers will your no claims bonus be reinstated. This can be an issue if you have a claim near to your renewal date and your claim takes longer than expected to settle. Your renewal premium may increase as a result, but you will be entitled to a refund if the claim is settled in your favour. Many people pay extra for protected no claims bonus to prevent this from happening. Some insurers will also try to recover your excess, but not all. If you have legal expenses cover (included free with policies purchased through Adrian Flux), an uninsured loss recovery company will chase your excess on your behalf – if you don’t, you will need to recover it from the third party yourself.
9. Motoring convictions.
Most insurers ask if you have had any convictions within the last five years, so you will still need to declare things like speeding convictions, even though you can have these removed from your licence after four years, and they cease to count for totting-up purposes after three. You should also immediately declare any convictions that you incur during the year of your cover, rather than waiting until renewal.
10. Cost of replacement.
Unless your home insurance policy specifies new-for-old cover, you will only be offered the cost to replace any items in the condition that they are at the time of the claim. So if you have a four-year-old computer, you will be paid the value of that computer, rather than the cost of buying a new one. Another reason why it’s worth double checking the cover you have rather than just opting for the cheapest premium on a comparison website.