Insurance – The Basics.

The Basics

As a distress purchase and legal “must” compulsory insurance has the capacity to send blood pressures sky high. But apart from trying to get the best premium, what should we  be looking for?

What is Insurance?

No more than a legally binding contract between you the insurance company.  In return for your hard earned cash (the “premium”) the insurer agrees to indemnify you in certain prescribed circumstances set out precisely in the contract.

Insurance and Assurance Distinguished

You will often hear the two words used interchangeably.  However, to be technically accurate, “assurance” should be reserved for life cover where the event (death) is certain to happen sometime. In the context of road traffic matters, you are insuring yourself in the event of IF it happens.

General Types of Insurance.

You can insure pretty well anything -at a price!  But most people feel the need to insure against lifes main slings and arrows-house, contents and motor. Of course, only the last is  compulsory.  The economies of scale are employed. By everyone paying premiums and pooling risks, people can afford to pass the buck to the insurers in the event of disaster striking-rather than having to pay out oneself.

Basic Motor Insurance

We are legally obliged to have at least what is known as basic road traffic act cover. This means that in the event of a claim against       you by a third party then there is a policy in force to pick up the pieces.  Usually out of for you. However, what is NOT covered is your ability to claim for damage to your own bike. For this you need comprehensive cover. Of course, separately you may have a claim against a person at fault.

Comprehensive Cover

As may be expected this is generally (although not invariably) the most expensive form of cover. The contract indemnifies you against compulsory third party claims + damage to your own vehicle. But NOT personal injury to yourself damage to your clothing or accessories (although this is usually available as an extra premium). To keep premiums down, you can agree to an “excess”.

The Excess

The idea here is that in return for a slightly smaller premium, you agree to pay say the first £100, £250 or £500 of any claim.

Failure to Insure

Regarded as a serious matter, serious penalties are incurred (see Legal Section of site).

Other Types of Cover for Motorists-General

As well as your basic road traffic act cover, you will invariably be offered other types of insurance at the same time. Typically legal costs, clothes and accesories together with personal injury, redundancy, wages and gap. Whilst not legally compulsory,they are often worth considering provided the premiums are reasonable. However the deal is packaged, remember that these “add ons” are generally separate contracts with their own terms and conditions.

Legal Costs Insurance

More is said of this type of contract elsewhere (particularly in the context of accidents). Indeed we have our own (fairly strong) views on certain aspects of this type of insurance. But at least it is usually cheap and, in a limited number of cases, can be useful in covering you against legal costs whether you are claiming or defending.

Breakdown

This is covered in a separate fact sheet but is, in fact, a form of insurance.

Personal Accident Insurance

Irrespective of whether you have a claim for compensation against a person at fault, the typical scenario here is that you can be covered for the loss of an eye or limb etc. If you are also making a claim for compensation, there may be a clause against double compensation.

Redundancy : Wage Loss : Mortgage Payments & other debts

An accident may have repercussions far beyond being injured. If, as most people, your budget is fully stretched, the disaster may be the last straw that breaks the camel’s back if you are not able to work. It is therefore well worthwhile considering these other types of cover -subject to reasonableness and proportionality in respect of premium levels.

Insuring Clothing : luggage : accessories.

People wrongly assume that this is covered with their normal policy.

Gap Insurance

Not a familiar term, this covers the situation where you do not get sufficient back by way of compensation to cover your losses.  Thus if you bike is subject to a consumer credit agreement, the outstanding amount remains whatever you may be paid out for the bike -hence the possibility of plugging the gap.

Insurance Underwriters & Brokers Distinguished

These days with the advent of large specialised brokers, the distinction with the actual underwriters has become rather blurred. People often assume that dealing with the broker means that they cover. That of course is not correct since the risk is taken by the underwriting insurer who may itself re insure the risk to spread it. The relationship between insurer and broker is rather a nebulous one. On the one hand the broker owes a duty of care to you as consumer but at the same time they are acting as agent for insurer.  As such, if a conflict of interest arises, then they are hardly likely to bite off the larger hand that feeds them!

The Small Print

As boring as it may seem, understanding the terms and condition of your insurance is vital.  Helpfully you are usually provided with a document rejoicing in a variety of names such as Key Facts/ Essentials  etc.  At the end of the day, however, it is the actual terms and conditions of the contract that count. Probably the most important things to consider are:-

  • what exactly am I insured for  &, just as importantly, what am I not insured for?
  • will I  have any “excess” to pay?

This material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.

More Help Needed?

Phil Shuker

MD Bikers Advice

Tel: 01706 227419

Email: phil@bikersadvice.com

 

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