Insurance is an essential purchase to cover you for the unexpected surprises that life can throw at you sometimes. However, the sheer variety of expensive events that can occur has led to many insurance contracts becoming huge, complex and ambiguous documents.

The longer a contract becomes, the less likely we are to read the small print – and that’s a situation that has only become exacerbated as contracts have gone online, often only accessible by clicking a link.

I believe it’s time for insurance companies to collectively rethink their contracts and make their terms and conditions shorter, clearer and accessible (and in a larger font too!)  However, until that time comes, we need to be on our guard when taking out insurance – and be aware that even the best policies have limitations.

Here’s my guide to five major insurance clauses that could cost you a fortune if you don’t notice them.

Car modifications

It might not always be obvious, but even the simplest of car modifications can result in higher premiums. While some of these increases might not make a huge difference to your premium, there can be problems when you come to make a claim. Some insurers have been known to reduce the amount they pay out if they discover you’ve modified your car. The final payment reflects what they might have charged you had they been aware of the modification information when you took out the policy. However, I have seen cases where policies have been voided due to the failure to disclose key modifications.

As with many insurance disputes, knowing what you need to tell an insurer about is not always clear in the contract. The term ‘modifications’ can imply a significant change to the vehicle, like a souped-up engine. However, even the humble decals – stickers used to decorate the vehicle – can result in higher costs. The most commonly cited decal modification is the ‘go faster’ stripe. Now clearly, a little sticker on a car doesn’t make you a worse driver, but insurers factor in a dizzying range of factors when setting your premiums and even a paint job can nudge you in to a higher risk category. Watch out with tinted windows too – especially as these become illegal if not enough light is let in.

You can expect to pay more if you have the following mods:

  • Engine and exhaust upgrades
  • Reupholstery and improved décor
  • Filters and remapping
  • Alloy wheels
  • Short shift kits
  • Custom bodywork

There are loads more too. As a rule of thumb, if you’ve had anything added to or changed on your vehicle, tell the insurer. Even the addition of a roofrack or a custom paint job has had an impact on some claims in the past.

Adventure and Winter sports

While spontaneous decisions to have an adventure on holiday can be great fun, wherever there’s a risk, there’s an insurance clause.

Travel insurance contracts are among the lengthiest policies you’ll come across, longer than an airport novel in many cases. This is because of the sheer volume of eventualities that they cover. But that means most of us don’t read the T&Cs in full – which means you can lose out big time.

While a good travel insurance problem will cover some things that might be considered mildly adventurous, like camping, for example, or very basic level hiking, if you’re doing anything else make sure you’ve taken out ‘adventure sports’ or ‘Winter sports’ cover. Most insurers will allow you to ‘add on’ this to your existing policy.

Some of the things covered by these policies are obvious, like bungee jumping, sky dives, or quad bike riding. Needless to say, the majority of activities you might take part in on a Winter holiday, from skiing to simply going on an outdoor walk, will require Winter sports cover as an extra.

But where people get caught out is things that might not seem too risky, like off-trail or challenging walks. Many a person has paid a high price for a last-minute decision to go for a ride on a banana boat, so check the policy before committing – and make sure the people offering the execution or adventure are fully qualified too.

Wear and tear

One of the most subjective clauses you’ll encounter in insurance contracts is the impact of ‘wear and tear’.

Inevitably, over time both the contents and structure of your home will become worn or will come to the end of their natural lives. This could include a television packing in after four years or part of your roof falling off.

The problem with wear and tear is it’s highly subjective. Your roof might not be in the best of conditions, but if nothing is falling off it and it gets damaged in a storm is that your fault? Most insurers define wear and tear as the natural damage that occurs to contents or your property structure over time. As a very general rule, if you should really have known that something needed fixing then a subsequent claim may be turned down due to wear and tear. But be prepared to push back if the insurer’s assessment doesn’t seem fair. For example, if your fence is blown down during a storm, unless it was damaged before or clearly suffering from rot or external damage, then your insurer should be considering the claim.

Often claims arise over an incident that is unrelated to the actual wear and tear. So a flood might damage your carpet, but the carpet may have already been on the way out anyway. I’d expect the insurer to compromise here. While you aren’t likely to get the cost of a brand-new carpet, you might get a reduced payment that covers what the old one was worth.

Health disclosure

From life and health insurance to travel policies, your insurer will ask you to ‘disclose’ relevant health information so they can assess whether they offer you a policy or not.

Back in 2012, the law around disclosure changed for the better. You have to tell the insurer about key health things that could affect how much you pay for the policy. But they also have to ask you clear questions so you know what to disclose.

When it comes to what you must disclose, in very general terms, you need to tell the insurer:

  • If you’ve had a serious condition, even if it’s in remission.
  • If you’re waiting for an operation or have had one over the last few years.
  • If you’re waiting for test results, from blood tests to x-rays or are being tested for something.
  • If you have an ongoing condition that you are receiving treatment for.

Then things get complicated. Some insurers ask you disclose every trip to the doctors you’ve had over the last year or two. Others, just ones where you had treatment or tests. This is a major concern of mine because this confusion leads to some of the most expensive and emotionally devastating claims I’ve seen. I’ve seen people stuck with bills from American hospitals for over £80,000, others stuck abroad unable to repatriate their partners and disputes raging over emergency treatment at private hospitals.

While this isn’t fair, until things change make sure you tell your insurer everything about your health and doctor’s trips. Consider taking a policy with limits of at least £2million if you are traveling abroad (and more for the US) and notify your insurer as soon as you can if you need hospital treatment.

Claimable incidents

One of the things I’m asked about the most is the ‘claimable incident’. While you might be aware of these contract clauses, they often cause outrage when a claim is turned down or reduced.

A claimable incident is where something happens that could lead to an insurance claim – and in theory makes you more of a risk in the future. So if your car is broken in to, but you just replace the window because it’s cheaper than making a claim, that’s a claimable incident – and your insurer will expect you to tell them about it. The same goes for a leak in your roof that you arrange to be repaired rather than making a claim.

Insurers may consider these issues to be reportable – and if they find out about them subsequently, they can reduce claims you make to reflect what your increased premiums might have been or on occasion, void your policy completely. This becomes particularly contentious when the situation is not your fault. If you get sideswiped by a bad driver in a car park, that’s clearly not your responsibility, but this might result in a higher premium. You can, of course, complain about these incidents if you think you’ve been unfairly penalised, but be prepared to argue the toss. If you don’t think that the contract is clear enough to define what a claimable incident is, then gather up your evidence first.

Taking things further

Just because an insurance contract contains these clauses, doesn’t mean they are fair or are being applied fairly. Insurance T&Cs that are ambiguous should not be used as a reason to reject a legitimate claim. And even clear clauses buried in the paperwork should not be invoked if they aren’t fair in the first place.

If you don’t think you’ve been treated fairly, then take your case to the free Financial Ombudsman. The ombudsman has a remit to not just consider the letter of the law (which can be rather inflexible) but what’s ‘fair and reasonable’. I’ve seen many cases where unfair T&Cs have been rejected as reasons for turning down your claim. So if in doubt, take it further.

Featured in Times Money Mentor – Martyn James

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