Ask Leo: Am I protected if my insurance company goes bust?
Insurance policies like home, car, or travel can enable compensation from The Financial Services Compensation Scheme in case of a provider's insolvency. Two principal methods exist for how it guards you
Should incase you need to claim from a bust insurer
The paramount objective of FSCS is to preserve continuity, should the insurer become financially unstable they'll attempt to find an alternative arrangements to maintain coverage on behalf of their customers. In case there are ongoing claims or it is required to initiate one before discovering another insurance provider then the FSCS has got them covered.
Supposing it goes bust and you paid upfront
Paying for an entire year’s worth of coverage but losing it all because the company became bankrupt just a couple months in would be distressing.
The objective of protecting against such situations involves providing an allotted timeframe during which alternate insurance may be obtained in case it becomes impossible for the FSCS to transfer your policy, and any payment made thus far shall also be repaid through compensation administered by means of FSCS.
To help explain, here's a quick example
A year long coverage was purchased by you in February however the insurance provider failed in October. Therefore, the policy may not be transferred by FSCS in which case you are entitled to a four month’s reimbursement based on its initial value.
The compensation that can be obtained depends on whether or not the policy is mandatory.
The fact that policies such as compulsory third party car insurance offer unlimited compensation means that in case of a claim being made under its coverage one can expect to receive the entire premium.
Thanks for your attention!