Don't unknowingly commit insurance fraud
You've paid for the driving lessons, the theory and practical test - however many times it took them to pass - and now your child is asking for help with road tax and insurance for their car.
Getting on the road is anything but cheap for a newly licenced driver and since driving lessons are often given as a 17th birthday present, it's not uncommon for parents to be expected to cough up for all the extras as well.
Each year, thousands of car insurance claims are rejected by providers because a parent and child have committed 'fronting', according to the Financial Ombudsman Service.
This is where the parent insures a car for their child in their name - implying that they are the main driver, rather than their less-experienced offspring. This can bring insurance premiums down by up to 50%, especially if the parent in question has built up a no claims bonus over a number of years.
Recent findings from insurer Direct Line show that 2.5 million drivers have admitted to fronting.
"Our research highlighted that 26% of those asked felt fronting was harmless – but it isn't," says Andy Goldby, director of motor underwriting at Direct Line. "If it's discovered and is determined to be fraud, the consequences could be grave."
Insurance companies may cancel your policy, charge the correct premium as a lump sum or refuse to pay out for claims. The policyholder may also be added to the Financial Industries fraud database.
In addition, the young driver can be treated as driving without insurance and face a fine and six penalty points on their licence, which in the first year of driving would mean they lost their licence altogether.
Steve Burton, group marketing manager for Santander Insurance, adds: "With first-time drivers potentially paying in excess of £1,500 for their insurance, fronting may seem like the cheapest option in the short term, but you're at risk of invalidating your insurance cover if there's an accident.
"However, if your child is the main driver they can start to build up their no-claims bonus more quickly – making it a lot cheaper for them in the long term."
Despite the potential penalties, 35% of respondents to a YouGov poll in December 2009 said they thought fronting was just a loophole in the law, while 10% viewed it as a legitimate way to get cheaper car insurance.
No claims bonus
A discount on a car insurance premium as a reward for having not made a claim on the policy. The NCB is earned for every year of claim-free driving; a driver will earn another year’s NCB to a maximum of five years. The actual discount on the insurance premium will depend on the insurer. If you make a claim, your insurance company may reduce your discount by a number of years so you have to “earn” these over again or it may revoke the NCB entirely. Motorists can generally transfer their NCB across to another insurer and can pay an additional premium to protect it so should they have an accident, the NCB remains intact.
If you’ve have a complaint about a financial service product you have bought but the company you bought it from refuses to resolve your problem after eight weeks, the Ombudsman can help. The Ombudsman will investigate and resolve the matter. The Ombudsman is independent and its service is free to consumers. The Ombudsman may find in the company’s favour but consumers don’t have accept its decision and are always free to go to court instead. But if they do accept an Ombudsman’s decision, it is binding both on them and on the business.
This is more usually a feature of car insurance but it can also crop up in contents, mobile phone and pet insurance policies. An excess is the amount of money you have to pay before the insurance company starts paying out. The excess makes up the first part of a claim, so if your excess is £100 and your claim is for £500, you would pay the first £100 and the insurer the remaining £400. Many online insures let you set your own excess, but the lower the excess, the more expensive the premium will be.