The Financial Services Compensation Scheme (FSCS) has juggled its compensation limits this week which brings bad news for those with insurance but good news for investors.
There are no changes to the savings compensation limit of £50,000 per person, per financial institution, which is in place if a UK-registered bank or building society goes bust (see the Safe Savings guide).
- The compensation limit for those buying non-compulsory insurance such as home and travel cover (see the Cheap Home Insurance guide) will drop if their insurer goes goes. Instead of being paid 100% of the first £2,000 of a potential claim and 90% of the remainder, you'll just get 90% of the total from the FSCS. On a £2,000 claim, you'll now only get £1,800 back.
- The limit for compulsory insurance (eg, third party motor and employer's liability) remains at 100% of the total claim (see the Car Insurance guide).
- The same changes and new limits apply where you've received poor advice from an insurance intermediary that goes bust.
Only two insurance companies have gone into "default", according to the FSCS, over the past eight and a half years. However, some have wobbled since the credit crunch began, such as American giant AIG.
- If you're gambling money in shares or in funds, your first £50,000 invested is now protected if the firm holding your cash collapses. Crucially, this does not mean you'll get compensation if a firm you've bought shares in goes bust as that's the risk you take (see the Investment Buying guide).
- But if a fund manager or intermediary fails and your money is not ring-fenced you will get compensation, though the process is not as straight forward as the savings market because investments are much more complicated products.
- The previous limit was 100% of the first £30,000 and 90% of the next £20,000 (max. £48,000).
In addition, if you get poor mortgage advice from a firm that collapses you could get £50,000 compensation rather than the previous £48,000 maximum from a misselling claim.
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