Car written off - still have to pay insurance?

ceebeeby

This is a theoretical question - but based on a story a friend and I heard - and we can't agree whether it's right or not.

Another friend bought a car, and took out insurance payable over 12 months. Two months later she crashed the car in the bad weather (no one else involved). Her insurance company have agreed to pay out (but about £1000 less than she paid for the car originally), but they have also said that she has to continue paying for the insurance until the end of the 12 months - even though she doesn't have a car.

I thought - no car, no insurance needed. Once the insurance has paid out, she should cancel the policy.

My friend who I was talking about this with, thinks that this is right, and the other friend should pay each direct debit until the end of the 12 months (another 10 months away)

Just to clarify, there is no longer any driveable car - the friend hasn't replaced it.

Welcome everyones thoughts!

adamc260

It's a weird way of doing it but the insurer is correct.

You agree to pay for an insurance policy.. be it in 1 lump sum or over instalments and in return they pay out on a valid claim you have. Now, just because your friend pays monthly doesn't mean they can only pay a portion of the policy and be paid out, they still have to meet their end of the bargain which is to pay a full 12 month policy.

Most insurers deduct the outstanding premium from any settlement... in this instance I guess they just want you to keep paying the direct debit

But in short... yes, the insurer is correct.

mikey72

Apart from the payout. If it's two months after she bought it, the payout should usually be the purchase price, according to the FOS.

skiddlydiddly

Person A pays their policy in full when taking it out.Person B pays monthly.Both write their cars off after 2 months.Why should person B only pay 2 installments yet person A has had to pay the full policy?There's your answer .

Also, if you use a broker and pay monthly, they will be paying for your insurance for you and then letting you pay them back with interest so its in effect a loan.

daveyjp

When you take out insurance which is paid monthly you enter a credit agreement - in essence the insurance company are lending you the money to pay for their policy. It is not month by month insurance, so full policy cost is due should a car be written off.

property.advert

A contrasting argument is that should you decide to cancel a policy mid term then you would not have to pay for the full term, receiving either a refund, perhaps pro rata or an ability to cese direct debit payments.

I looked at this years ago and found some slimy cheating small print to allow them to claim. However, I am not sure if this would stand up to heavy scrutiny.

dacouch

property.advert wrote: »

A contrasting argument is that should you decide to cancel a policy mid term then you would not have to pay for the full term, receiving either a refund, perhaps pro rata or an ability to cese direct debit payments.

I looked at this years ago and found some slimy cheating small print to allow them to claim. However, I am not sure if this would stand up to heavy scrutiny.

No way out, here is the Ombudsman's view

17. outstanding premium instalments or premium refunds

"Usually the policy is a yearly contract and the full premium is payable even if the vehicle is written-off during the year. If the policyholder paid the yearly premium up-front, no refund is due. If the policyholder was paying the yearly premium by monthly instalments, the outstanding instalments are still payable"

adamc260

property.advert wrote: »

A contrasting argument is that should you decide to cancel a policy mid term then you would not have to pay for the full term, receiving either a refund, perhaps pro rata or an ability to cese direct debit payments.

I looked at this years ago and found some slimy cheating small print to allow them to claim. However, I am not sure if this would stand up to heavy scrutiny.

Refunds are not given if you make a claim during a period of insurance.

Marvel1

You don't have monthly insurance, it's a year and paying it back monthly is a "loan".

property.advert

dacouch wrote: »

No way out, here is the Ombudsman's view

17. outstanding premium instalments or premium refunds

"Usually the policy is a yearly contract and the full premium is payable even if the vehicle is written-off during the year. If the policyholder paid the yearly premium up-front, no refund is due. If the policyholder was paying the yearly premium by monthly instalments, the outstanding instalments are still payable"

Yeah I understand but I contest that it is an unfair term and potentially unlawful.

Even if you accept that your insurer goes to the reinsurance market then we have to accept that they need flexibility to manage an ever changing risk (people changing cars, dying, simply stopping paying etc.) so the premise that they cannot manage an intra year insurance risk is laughable.

Additionally, there is the simple fact that you cannot / don't need to insure something which does not exist i.e. a written off car. This premise does not seem to have been sufficiently tested.

Donkeys years ago the argument that insurance was an unbreakable annual contract was more valid, though still unfair back then. The urban myth of someone wanting money back from a paid up policy when selling the car was to ask for a quote on a Ferrari as insurers were known to refund pro rata when they could not quote on a car against a highly leveraged payout ratio in their favour otherwise.

That it has not been challenged does not surprise me. The end user is usually down a few hundred pounds and has limited power. There would need to be a concerted campaign by someone like Which? to have any effect and the numbers involved mean that this will not happen.

The public are being shafted and there is ample argument for reform but simply little appetite for it.

jazzy

I would have thought that the policy and monthly payments would continue. The usual procedure is that you would replace the car and the policy is then transferred to the new car.