Insurance World

Everyone has to agree to an excess of some kind when getting a car insurance policy – it’s the way the system works. Basically it means that if you have an accident and your car needs to be repaired, you will have to pay a set amount towards the bill. If the accident is your fault, you lose the money. If the accident is not your fault, the third party insurer reimburses you for the excess payment. If your car is written off, then your insurance company will deduct your excess from the settlement payment.

Things aren’t always that simple however, unfortunately there are a number of drivers on British roads that don’t have any insurance, so the question is, what happens with your claim if you have an accident with an uninsured driver?

The 1988 Road Traffic Act, section 143 clearly states that all drivers on the UK roads must have insurance for the vehicle that they are driving. The point of the insurance is that if you have an accident and it is your fault, you have the means to cover the cost of the damage incurred by way of your insurance policy. It’s a sad fact that a significant minority of drivers choose not to bother with insurance, disregarding UK law and saving themselves hundreds of pounds a year as a consequence. Someone has to pay for these drivers though, and it’s the people that do have insurance that foot the bill!

The Department of Transport estimates that as many as 5% of drivers are not insured on the vehicle which they are driving. Statistics also show that uninsured drivers are more likely to be involved in an accident. It’s a growing trend and is proving very difficult to eradicate.

If you have an accident, you are not at fault, and the third party is not insured, then you will be reimbursed by the Motor Insurers’ Bureau. Who funds them? The car insurance industry! That’s where some of your inflated premiums end up. You will also find that you’ll have to pay the agreed excess yourself, there will be no-one able to refund that for you.

Here’s the low-down on the basics about ‘excess’:

Compulsory Excess – this is the amount that the insurance company regards as the minimum amount that you must pay towards the cost of damages . This is agreed at the outset and depends on a few details you’re your age and your driving record. For example, if you are older and have a clean driving record, you could only have to pay a minimum of Ј50. Those with a more chequered driving history, or those that have not been driving for very long, could feasibly have to agree to pay Ј500. The average for most drivers is Ј100 .

Voluntary Excess – this is the amount over and above the minimum ‘compulsory’ amount set by the insurer that you are prepared to pay. This is an opportunity to lower your premiums, because if you can agree to a high excess, then the insurance company knows it won’t have to pay out as much if you need to make a claim. It’s one of the few sure fire ways of saving a few pounds on a car insurance policy, but you may not be offered the choice, it depends on individual insurers.

The garage won’t give my repaired car back until I give them a cheque for the excess – is this what usually happens?

This is completely normal, and you will have to pay and then get the money back from the third party insurer. Always give the car a good once over to ensure that the repairs have been satisfactorily completed. You also need to keep the receipt to get the excess back from the insurer, and just in case they dispute the charges, get a copy of the repair schedule so the insurer can see exactly what work was completed on your vehicle.

These complicated financial products combine life insurance and investment growth in one package. They were most commonly used as a way of repaying a mortgage and were most popular with homebuyers in the eighties and nineties.

The reason so many people bought them was because home loan firms and middlemen such as estate agents earned large commissions for selling. The charges tend to be ‘front-loaded’ meaning most of it is paid up front and therefore, for several years you will receive little if anything back if you have to stop paying the premiums.

In theory, these policies can grow to more than you need to repay your mortgage, giving you a bonus to spend on anything you like. In practice, this has rarely happened in recent years and of the 8.5 million endowments in 2004, 6.8 million were not expected to clear the mortgage they were originally intended to pay off.

With an endowment mortgage, you do not repay any of the capital you borrow during the term of the loan. Alternatively, the endowment policy should grow to produce a lump sum which is large enough to repay the loan in full at the end of the pre-agreed period of, normally, 25 years.

The monthly payments consist of interest on your mortgage loan and the premium for the endowment. Within the package you also pay for life insurance which will repay the loan should you die. However, there is no guarantee your endowment will pay off your mortgage.

When the time comes to making a decision on stopping an endowment and surrendering it, it is important to check your policy and make sure there is some value in doing so.

Early redemption can result in making less than you would have if it carried on for its full term. However, if you need the money, this could be our only solution.

Continuing to pay money into a poorly performing investment could be throwing away hard earned cash.

As well as surrendering it back to the company from whom it was bought from, policyholders also have the option of selling to a third party.

This can also have the added benefit of getting more for your policy than you would if it were sold back to the original issuer.

Different companies will have different requirements when it comes to them buying your endowment.

Usually they would require it to be with-profits or a with-profits whole life policy and have been running for a minimum number of years (the number of depending on the company).

Some will also require a surrender value of at least Ј1,500. If your policy does not meet the criteria, they will not be able to handle your sale. This would mean the only other option available is what the policy issuer will offer.

The Association of Policy Market Makers (APMM) is the industry body for firms specialising in the buying and selling of endowments. An independent financial advisor could also be helpful in comparing offers and helping you get the most for your policy.

There will be a fee for the work, but it could save you time and energy and also help you achieve the best possible price.

Don’t forget how important your endowment policy is. Like with an investment, you should not suddenly cancel the policy without doing the appropriate research and taking the adequate financial advice.

If you stop payments on a policy, you may lose any life assurance cover that was offered to you. This is an important consideration for your dependents if you are then taken ill or were to die without having set up an alternative method of paying off the policy.

On average around half of the total payout on an endowment if you don’t sell will come on the very last day. This is the so-called terminal bonus and it is not guaranteed. Stop paying in before then and you are likely to lose this. Instead, you will get the benefit of only the annual bonuses added to your policy.