10 lesser-known insurance secrets

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Insurance seems simple enough. You hand over your premium and if anything bad happens you get a payout. Straightforward stuff. However, if it was all so simple it wouldn't be nearly lucrative enough for insurers to bother with.

So we have done some digging, to find ten things you never knew about insurance. We reveal how you can avoid falling foul of them, or even exploit them.

1. There's no such thing as an 'Act of God'

... from an insurance perspective anyway. It's a common misconception that insurers can claims things like ash clouds or hurricanes are acts of god and they can refuse to pay out on this basis. However, this is nonsense. These things may well be excluded, but not because of any religious drama. Policies will list out all the things you are covered for, and if ash clouds don't make the list, you're not covered.

In some instances the insurer will go beyond the stated coverage, so for example in many cases insurers paid out for ash-cloud-related claims, but you can't count on it, so check your cover carefully.

2. If you cause a car accident, your injuries will not be covered.

You may think you have fully comprehensive cover. However, if the accident is your fault, while any road users or passengers in your car will have loss of earnings and medical treatment, you will be entitled to nothing.

3. Driving without tax or an MOT does not invalidate your insurance.

In a minority of cases you need to have both in order for your issuance to be valid, but in most causes you don't.

It's not a great idea to drive without them, because you can be caught and fined. If you drive without tax you could have your car crushed too. In addition, if a fault on the car caused the accident and that fault would have been picked up by an MOT you may run into difficulties.

However, if you have a prang the day after your MOT expires you haven't necessarily invalidated your insurance.

4. Insurers often cannot verify if you have a no claims bonus.

At the moment they have to go back to your previous insurer to ask them to verify it, and they have no incentive to tell them.

Over time this could become more of an issue, as there are plans afoot to set up a national register of no claims bonuses. However, at the moment, the insurer has no way of telling whether or not you have made a claim.

5. A higher voluntary excess will not necessary give you a much lower premium.

Traditionally part of the accepted advice on insurance was that by hiking your car insurance voluntary excess you could lower your premium. However, recent figures show that you would struggle to save more than £50 even with a voluntary excess of £300. Once you have hiked the excess this high, add it to your compulsory excess and there's a good chance it would never be worth you making a claim - so it's a false economy.

6. Your life insurance could pay out before you die.

Living benefits are very in-vogue in the US, where insurers offer payouts during your life for things such as disability or the diagnosis of a chronic illness. It's not as popular in the UK, but lots of policies have some living benefits. In many cases, for example, a policy will pay out when a terminal illness is diagnosed rather than on death, to enable you to benefit from the cover.

7. Having insurance doesn't mean you can throw caution to the wind.

There are two clauses in travel insurance which means you cannot claim if you have really let your hair down. The first is the 'duty of care' exclusion, which means if you have been thoughtless and careless with your possessions they will not be covered. The other clause relates to alcohol consumption. If you lose your baggage or cause yourself an injury while under the influence of alcohol you will not be covered.

8. You could end up paying 40% tax on a life insurance payout.

If you set up life insurance badly it will form part of your estate. If it then breaches the inheritance tax threshold, the beneficiaries will have to pay 40% tax on it. It's essential, therefore, to write a policy in trust for the benefit of those you want to receive the money.

9. Your home insurance doesn't cover everything.

It will usually be 'perils based'. This means that you are only covered for the specific risks outlined in the contract. If something like accidental damage isn't mentioned, then it isn't covered. If you want blanket coverage you need an 'all risks' policy, usually from a specialist insurer.

10. Critical illness insurance may exclude things you feel are critical.

If you buy this cover, it's essential you check the small print for what it considers to be critical. Some, for example, won't pay out if you lose an arm or a leg, or are diagnosed with some cancers, so check you are happy with the limits of cover.
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