Don't unknowingly commit insurance fraud

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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.

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