Insurance: How to lose cover without realising it?
Tuesday, 03 November 2009 10:22
Recently a woman from Barnsley was shocked to find an undeclared minor conviction invalidated her home insurance policy after an arson attack.
She was left with a bill for £240,000.
Now we all may be wondering if our own insurance policies are still safe - or likely to fall flat when it comes to a claim.
Sarah Routledge finds out how to avoid a similar fate and not find insurance claims denied due to forgotten dark secrets in your past.
Car insurance
Only one or two per cent of their customers are found to have not been entirely honest when setting up their car insurance policy, says Andy Goldby, director of motor underwriting at Direct Line.
"Of these non-disclosures three in every four relate to convictions and the majority of these are for speeding related offences. Clearly there is a public perception that these are not 'important' and that the insurer need not know about them.
However, this is a dangerous assumption.
"At best it will slow down the payment of a claim and at worst could lead to the insurer declining to pay the claim," Mr Goldby warns.
"We would always strongly advise that the policyholder gives all the necessary information at the start of the policy to avoid any nasty surprises later."
Drivers should always advise their insurer of any changes to their circumstances, he says.
'Fronting', where the main driver of the vehicle is insured as the named driver to reduce the cost of their insurance, is fraud and effectively means a driver is uninsured, Direct Line adds.
This tactic is sometimes used by parents to help their inexperienced offspring get a cheaper policy if the insurer suspects the main driver has been listed as the named driver, the claim can be rejected and the correct premium will be reclaimed.
Not only will this prove expensive, but the perpetrator can be deemed a fraudster, which will hinder their ability to get an insurance policy - in fact any financial product - in the future; a very costly mistake.
Home insurance
When applying for home insurance, customers are either presented with a set of assumptions if they are applying online, or asked a series of questions if buying over the phone.
This includes any criminal convictions.
A policy will not necessarily be rejected if you admit a conviction, but your insurer considers it a material fact and will want to know.
It is also important to check the policy once it is sent out, to make sure all the information is correct - if there are any mistakes, it is up to you to tell your insurer straight away.
Insurers also make assumptions about what you are insuring.
Claire Foster, spokesperson for Churchill home insurance, says: "We would urge homeowners to ensure their contents insurance is fully up to date and high value items are individually listed.
"A new engagement ring or an expensive piece of furniture might not be covered if you haven't informed your insurer."
Don't be tempted to claim for items that were never there, however, Ms Foster says.
"Exaggerating a claim could lead to your claim being repudiated and even a conviction for fraud. If, for example, your home was flooded and there was £40,000 damage, but you tried to claim for some items that weren't there in the first place, the whole claim may be rejected.
"Although insurance fraud is sometimes seen as socially acceptable, it is actually increasing premiums for everyone."
Underinsuring your contents can also pose a problem for policy holders when they come to claim.
If you have underestimated the value of your possessions by ten per cent, for example, your insurer can knock down a future claim by ten per cent for underinsurance.
Underestimating the value of your home's contents is common, but Legal & General has a useful home contents calculator to help you make a more accurate evaluation.
A further problem for home insurance can come if you have a lodger.
Failure to let your insurer know about a lodger could potentially invalidate a future claim.
Travel insurance
Pre-existing medical conditions for yourself or close family, which could lead you to cancel the trip, have to be mentioned to your insurer when taking out a policy.
You should also think about what you will be doing on your holiday - many activities are included on the policy but some of the riskier activities could be excluded.
The only way to be sure is to check through the terms and conditions that come with the policy and ring the insurer if you have any questions.
Ian Crowder, spokesperson for AA Travel Insurance, says: "Another mistake people make unwittingly, is when they buy annual travel insurance policies. When it says when do you want the policy to start, if you say the first day of your next holiday instead of immediately, you are not covered until then.
"So if you get ill and have to cancel the trip before you go, you won't be covered because the policy hasn't started yet. That's not the case with single trip insurance, as the risk of cancellation before the trip starts is already priced in."
There are also ways of invalidating your travel cover while you are away, which will also be mentioned in the terms and conditions.
Leaving valuables lying around, or in the hotel room but not locked away in the safe, is not going to impress your insurer.
Neither is any damage to yourself or your property while drunk - most policies will not cover your hospital treatment if you are found to be "excessively intoxicated".
If you are away and you think you will need to make a claim once you get home, a quick call to your insurer for some advice could prove invaluable when you come to claim. Often some evidence is needed - proof that you have reported a theft to the police, or a receipt from a medical bill for example.
Material facts
Failing to tell your insurer a 'material fact' - whether deliberately or accidentally - is the easiest way to invalidate your policy, insurers explain.
Erik Nelson, a spokesperson for Aviva, says: "The point is you have to be honest with your insurer. So you should be telling your insurer any material facts when you take out insurance.
"Even if you have had a criminal conviction, it doesn't mean you won't get insurance. To not be honest with your insurer leaves you at risk of not being covered."
By answering all the questions honestly, your policy should never be invalidated, Mr Nelson says.
Yvonne Savage, spokesperson for Standard Life, adds: "The good news is that insurers must be very clear about what information they're seeking so you don't need to second-guess what they're after.
"If their questions are unclear then the insurer can't later refuse a claim on the grounds of non-disclosure if a customer couldn't reasonably have been expected to know that this was information they should have given."
But remember these questions also apply throughout the policy - so if anything changes, give your insurer a ring and let them know.
Insurance is not necessarily a minefield, and is usually simple. But making sure you have crossed all the Ts and dotted all the Is will mean a claim can be dealt with quickly.
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