Home Insurance - Bankruptcy

TheGardener

FutureGirl wrote: »

It's because those that are BR are more likely to either not pay the insurance policy, or commit fraud. It's all about risk / statistics.

Really? How's that work then? I have to say that telling me I'm more likely to commit fraud because I've been BR is a bit rich. And how does paying the whole year up front affect the not paying their instalments exactly?

Are BR's (who are not in debt) more likely to default on payments then people who are not BR but up to their eyes in debt?

Small_Yeti

It is because it is deemed a moral hazard and therefore it will affect your premium/Insurers willingness to insure.

There are two types of hazard, physical and moral. A physical hazard is, rather obviously, to do with a physical characteristic of the thing being insured. So if a car is fast and powerful these are physical hazards and will rate a higher premium than if it was a little 1ltr run around that would be unable to reach the same speeds in the same amount of time. Therefore the small car is a better physical hazard than the fast and powerful car.

Then there is the moral hazard, i.e. the person being insured. For example, a 21 year old with two accidents already to their name would be viewed as a higher moral hazard than a 40 year old in good health with a pristine driving record.

Both of these hazards are combined in determining premiums. This is why younger drivers tend to pay more.

Obviously, whilst I am using cars as an example this goes across the board in all insurances. Therefore, someone who has gone bankrupt is viewed as more likely to present a higher moral hazard than someone who has not as they (in the Insurers' eyes, I am aware things are never this black and white in real life) have failed to effectively manage their finances and therefore may be more desperate to obtain money, which may lead to an otherwise law abiding person committing such as an act of arson to claim from their home insurance.

I'm not saying that this is fair or that this should be viewed as a personal reflection on anybody but this is the reason.