Consumer Rights: the insurance I had to pay twice

The case of a reader caught between two management firms; Should you buy redundancy cover? Cash in or sell up – what's the best way to get out of an endowment?
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Q: I am furious at being made to pay twice for insurance on the same property. The property in question is a small flat I purchased on South Terrace in Littlehampton, West Sussex. Insurance has recently become the responsibility of Pier Management, which is demanding £331 for cover from 24 December 2007 to 23 December 2008. Under threat of a fine, I paid this by credit card.

However, I have already paid another company, Wood Management, for half-yearly cover from 30 September 2007 to 29 March 2008 and again from 30 March 2008 to 29 September 2008, as part of my service charge. Can I claim this back?

ML, Littlehampton

A: This is a bit of a saga, I spoke to Grant Cooper, managing director at Pier Management, who said that Wood Management, the original management company, had collected the insurance as part of the service charge and then failed to pass that on to the insurer. Pier has therefore had to levy a second charge to ensure the building is properly insured. It has also changed the management to Countrywide to ensure these problems don't happen again. Mr Cooper says Wood should refund the service charge to you.

Wood has been through some interesting times recently. It was previously part of the self-styled "one-stop property shop" Erinaceous Group, which called in the administrators in April. Wood, along with other parts of the business, was sold to Caley, a business investment company established by HBOS, HSBC and Lloyds TSB. However, Companies House shows the firm as dormant for this year.

I also spoke to Claire Corbett, operations director at Wood, who said the insurance hadn't been paid because a number of the leaseholders hadn't paid their service charge. There was therefore insufficient money in the overall kitty. She added that you should have been able to claim a refund of your service charge, but because the management has changed to Countrywide, you can no longer do so.

This is spectacularly bad practice – not least because it was the company's responsibility to ensure all service charges were collected promptly. However, it does not actually seem to be illegal, though you should go back and check the small print of your lease.

Ultimately, Wood has acted badly, but you have a new – and hopefully more efficient – management company in place. Depending on the terms of your lease, you may be able to pursue Wood through the small claims court, though I am not optimistic it will budge and pay over your money.

Q: I work in property and, given the state of the economy, I am increasingly worried about losing my job. Statutory redundancy pay doesn't seem to be very much.

I have heard about various insurance plans, but from what I read in the press they seem to be quite a mixed bag. Also, does a certain amount of time have to elapse between taking out a policy and being made redundant to be able to make a claim?

JB, Reading

A: Unemployment has been shooting up in recent months and economic pundits suggest that worse is to come. Protecting yourself against redundancy can be expensive but is certainly worth considering, particularly if you are the main breadwinner in your family and don't have much of a financial cushion.

There has been controversy about these products, though, mainly because they have been sold beside payment protection insurance (PPI) policies, which cover your mortgage or loan should you lose your job or be unable to work due to ill health. PPI has been heavily criticised, with consumer groups suggesting that it offers poor value for money and is often sold to people who are excluded form claiming because they are self-employed or retired. It seems that the Competition Commission agrees there is a problem: the regulator said last week it wanted root-and-branch reform of the marketplace.

Matt Morris, senior policy adviser at broker Lifesearch, says you do not need to buy PPI and should be wary of anyone who tells you that you do. He adds that unemployment cover can also be bought on its own or with good-quality policies such as income protection.

"Anyone interested in protecting themselves against redundancy," he says, "should think about taking out unemployment insurance, which usually runs for 12 months."

Insurers have systems in place to ensure that buyers do not get a whiff of redundancies at their employer and immediately take out protection. Mr Morris says: "Consumers need to check the 'qualifying period', which varies from policy to policy. This is the amount of time between the policy starting and the point at which you can start claiming. If you are made redundant within that period, the policy won't pay out. Remember that once you have specific knowledge that your job is under threat, you can't take out a policy. So it's best to act sooner rather than later."

Q: With endowment companies cutting back on their bonuses and the policies themselves not performing particularly well, does it make financial sense to cash them in and stick the proceeds in financial vehicles like individual savings accounts (ISAs) instead?

I accept there will be a loss of life cover if a policy is cashed in but are endowments a good bet for the future?

FS, Basingstoke

A: The quality varies from product to product and whether to sell will depend on the policy you have and your own financial circumstances. But Ben Willis at financial adviser Whitechurch sums up the problem: "In recent years, many endowments have been exposed as flawed. The charges are relatively high to pay for life cover, and performance is relatively poor as the investment tends to be in the provider's with-profits funds.

He believes you should stop paying the premiums, but adds: "Before cashing in, look to trade the policy on the second-hand market. At no initial cost and with no obligation to proceed, endowment brokers will find out how much the market will pay for your policy – and this may be higher than the cash-in value.

"After this, I would look to separate the insurance and the investment. Relatively cheap life cover can be maintained through a term assurance policy, and the rest of the proceeds from your sold or cashed-in policy can then be invested in an ISA to exploit the tax benefits and wider investment options."

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