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INSURANCE
Insurance is complicated and will remain so for the next year or so, as changes within the insurance industry are being made. Insurance can be divided into two areas - general and life insurance. General insurance covers your house, car, travel, in fact any short-term policy that pays out when things go wrong. Life insurance (which also includes pensions) covers policies that are of a long-term nature and pay out at the end of a term. Most insurance policies fall under one of these two categories, although there is some confusion currently about health insurance and long-term care insurance, which do not easily fit into either group.
Before you take out insurance, make sure you know the answers to the following questions:
If I make a claim, will I have to bear any amount of the cost myself?
Are there exclusions or restrictions in this policy, which may apply particularly to my family or me?
Who do I complain to if there is a problem with this insurance?
Understanding some of the main terms will help you clarify the type of policy you have and assist when you need to make a claim:
Excess - An amount of money, which the policyholder has to pay towards the cost of a claim, for example, the first £100.
Index-linked - Insurance where the amount of cover and premiums change automatically in line with inflation.
Loss Adjuster - An independent person paid for by the insurance company to assess the amount payable for a claim.
Loss Assessor - You can employ a Loss Assessor to act on your behalf, particularly helpful if you have a complicated or large claim. For a fee - usually a set percentage of your eventual payout - they will negotiate to ensure that compensation from the insurance company is maximised. The Institute of Public Loss Assessors (01494 782342) can put you in touch with one of their members in your area.
New-For-Old - Cover for property with no deduction for wear and tear. The item lost or destroyed would be replaced with a new one.
Third Party - Someone involved in a claim who is neither the policyholder nor the insurer.
Under Insurance - When the sum insured is not enough to cover the maximum possible loss or damage.
Underwriter - Person who decides whether to accept a risk and calculates the premium to be charged.
Write-Off - A damaged vehicle which is not repairable, or one, which would cost more to repair than the car was worth before the damage occurred
Although some general insurance policies are now sold direct to the public, most insurance is still sold through a network of agents, brokers or intermediaries, whose differences are not always apparent. Many are registered with the Association of British Insurers (ABI) and follow its code of conduct. As long as the company is registered, the ABI can assist with complaints from the public concerning how a policy is sold. All brokers are not registered with the ABI, but instead are members of the Insurance Brokers Registration Council, who deal with similar complaints. Some intermediaries (for example, High Street shops) who sell insurance are neither brokers nor 'ABI coders' and so are outside of any kind of regulatory regime.
Everybody who sells insurance, whether they call themselves an agent, broker or an intermediary, will be encouraged to register with a new organisation, the General Insurance Standards Council. This Council will gradually take over all regulation of how general insurance is sold. It will be the first contact for complaint, making the system simpler. If you have a query concerning the policy you have bought or about a claim you have made, this should first be directed to the insurance company itself. If you are not satisfied with how the claim is being dealt with, ask for details of the company's own complaints procedure. The ABI can also help ensure a complaint is seen by a senior member of the insurance company involved.
If you are still not satisfied, you can then contact the Financial Ombudsman Service (South Quay Plaza. 183 Marsh Wall, London E14 9SR, telephone 0845 080 1800) or click here.
Although it uses the name 'insurance', most life insurance policies are more like long-term investments. At present, it is regulated with other types of investments and advice under the 1986 Financial Services Act.
Anyone giving investment advice must be authorised. It is a criminal offence if they are not. Advisors should make it clear when you first see them who they are authorised by. The Personal Investment Authority is the regulatory organisation for life insurance and its agents. This authority scrutinises the sales of all life insurance policies, pension policies and other investment plans. If it has not been possible to resolve a complaint you have with the company concerned, the PIA have an ombudsman scheme that deals with life insurance policies and sales. Any person advising on or selling life insurance must either be a company representative or an independent financial adviser. Please see below for details:
Company Representative - An agent appointed by a life insurance company who is authorised to sell and advise only on the products of the particular insurance company to which they are 'tied'.
Independent Financial Advisor - A person who is authorised to sell or advise on the policies of any life insurance company in the market
Life Assurance (Family Protection). There are several different types of Life Protection policies available and the following is a simple explanation of each.
Level Term Assurance. This is one of the most straightforward forms of Life Protection policy. The policy works on the basis of a fixed lump sum (the sum assured) in the event of the death of the policyholder over a fixed number of years and for a guaranteed premium. The policy can be set up in joint life names (i.e. husband and wife) or in single life names. There is no cash or surrender value to the policy, so when the number of year's the policy is set up for ends, the policy simply stops. If you stop paying at any stage, the policy lapses and has no value. You decide the sum assured and the number of years you want the policy for and the sum assured is the guaranteed amount of money that will pay out tax free if death were to occur. This is one of the most common cost effective types of Life Protection policy and is used for many different reasons, family security and protection until children are grown up, protecting partner's in the event of death and the loss of a major breadwinners income, replacing funds for School Fees, providing funds to look after young children in the event of the loss of the person who looks after them, protection around a mortgage or other form of loan. When looking at this type of policy you should always discuss the implications of putting the policy in trust to protect the interests of those who will be the beneficiaries of the policy and to alleviate tax burdens for them.
Mortgage Decreasing Term Assurance (Mortgage Protection). This type of policy is normally taken out by people specifically looking only to protect a capital and interest repayment mortgage. This type of policy works on a guaranteed monthly premium but instead of the sum assured remaining level and guaranteed it will reduce, over the term (the number of year's the policy is set up for) of the policy, roughly in line with the amount of debt outstanding on the loan. The policy, therefore, will only guarantee to pay off the outstanding amount of the loan at the time a claim is made and there will be no extra money left over. It is normally cheaper than Level Term Assurance but should only really be used to specifically cover a mortgage debt. Remember the policy will only pay off the outstanding loan and there will be no extra money left over for dependants. Similarly as the policy is designed to protect the loan in theory as the loan is paid off the policy will come to an end and there is no cash back when the policy finishes.
Family Income Benefit. This is another type of Decreasing Term Assurance, however, in the event of a claim instead of a lump sum of cash being paid the money from the policy is paid on a regular basis for the rest of the term of the policy to replace a lost income. You specify the amount of Annual Income you wish to have set up and the number of year's you wish the policy to run for and the premium will be fixed for that time. This type of policy again may be cheaper than the Level Term type of insurance but is only designed to pay a regular income. This type of policy may be ideal for people with a young family looking to protect against the loss of an income until young children have grown up.
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