Q. I seem to recall reading in your column some time ago there is a preferred way to pay for restaurant bills and other purchases when using your debit card overseas. I am about to go on holiday later in July and wondered if you could repeat that to refresh my memory.
A. I think what you are referring to is the question of whether you should select local currency or sterling when making purchases with your debit card when abroad. This is a more complex question than appears on the surface. The general rule of thumb is to pay in the local currency of the country you are visiting. If you pay in local currency your home bank does the conversion rate for you. If you pay in sterling you opt for “dynamic currency exchange” which allows the foreign bank (or the retailer’s bank) to do the currency conversion instead, often taking a tidy profit from the transaction. It is generally safer to allow your home bank to do the conversion. It is possible that by paying in the local currency you don’t get the best possible deal, but if that’s the case then there is usually only a small difference. If however you opt to pay in sterling and you have made the wrong choice the difference can be quite substantial. Therefore it is normally safer to pay in local currency.
Q. My boyfriend and I are in the process of buying our first house, and wanted to take out life assurance on each other’s lives in case either of us were to die, but were told that “insurable interest” might be a problem. What is insurable interest?
A. This dates back to the 18th century and the Life Assurance Act 1774, which amazingly is still the law governing such policies. In order to take out an insurance policy on someone’s life, there must be some form of “insurable interest”, or some reason why you might be worse off in the event of their death. The Law was introduced to prevent people gambling on who might die in a duel, or similar, when there was no loss to the owner of the policy and no connection with the person whose life was covered. Similarly, you can insure the contents of your own house against fire or burglary, but not the contents of your neighbour’s house, as you would not be worse off if he were burgled. Individuals have unlimited interest in their own lives, and in the life of their legal spouse or civil partner, and can therefore take out a policy. However the relationship between cohabitees is not recognised under the current law. Some insurance companies will actually allow such policies, on the basis that the risk of challenge in court is negligible. The solution for those companies that do not is to each take out a policy on your own life, and place this in trust for the other. Alternatively you could do a joint policy. Things could change in the future, as the law in this area is under review, with a proposal that the relationship between cohabiting couples is recognised in the same way as those who are married for the purpose of determining whether there is “insurable interest”. This would seem more relevant to the modern world than the possibility of people gambling on the chances of participants in a duel!
If you have a question you would like Trevor to answer, please email it to: yourmoney@rwpfg.co.uk or post it to Your Money, Rutherford Wilkinson Ltd, Northumbria House, 21-23 Brenkley Way, Blezard Business Park, Newcastle upon Tyne, NE13 6DS.
