How the Financial Services Compensation Scheme protects UK policyholders if an insurer fails, and why the protection level depends on the type of policy you hold.
Last reviewed: 1 July 2026
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BEFORE YOU BUY |
If a UK insurance company fails financially, most policyholders do not simply lose their cover or their money. The Financial Services Compensation Scheme (FSCS) is the UK's statutory safety net for customers of firms authorised by the Prudential Regulation Authority (PRA), and it covers most personal insurance policies. The level of protection depends on the type of insurance.
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KEY FACTS
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Why the protection level is not the same for every policy
The FSCS applies different tiers because some types of cover are legally required or considered essential to a person's welfare. Motor third-party cover and employer's liability insurance are compulsory by law, so the scheme protects them in full. Long-term insurance, such as life assurance, is treated the same way because a partial payout could leave a policyholder's family without the cover they had planned for.
General insurance policies that are not compulsory, such as home, travel, pet, and most contents cover, are protected at 90% of the value of the claim. This means a policyholder could be left covering the remaining 10% themselves if the insurer fails while a claim is outstanding.
Who has to be involved for FSCS protection to apply
For FSCS protection to apply, the failed firm must have been authorised by the Prudential Regulation Authority at the time it took on the risk. The PRA and the Financial Conduct Authority (FCA) jointly set the rules the FSCS follows, but it is the PRA that authorises and prudentially supervises UK insurers.
What actually happens when an insurer fails
When an insurance firm is declared "in default," the FSCS does not always pay cash directly. It has three main routes available: arranging for another insurer to take over the failed firm's policies, paying out the value of a claim directly to the policyholder, or refunding a portion of the premium paid if the policy is not being continued elsewhere. Which route applies depends on the type of policy and the circumstances of the failure.
FSCS protection level by insurance type
| Insurance Type | Protection Level | Payout on a £20,000 Claim |
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| Compulsory motor (third-party) | 100% | £20,000 |
| Employer's liability | 100% | £20,000 |
| Life assurance | 100% | £20,000 |
| Professional indemnity | 100% | £20,000 |
| Building guarantee (post 8 Oct 2020) | 100% | £20,000 |
| Home insurance | 90% | £18,000 |
| Travel insurance | 90% | £18,000 |
| Pet insurance | 90% | £18,000 |
| Contents insurance | 90% | £18,000 |
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Protection level: 100% tier vs 90% tier Compulsory / long-term / professional indemnity: 100% General insurance (home, travel, pet, contents): 90% |
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Worked Example: Escape-of-water home insurance claim A homeowner has a £20,000 escape-of-water claim approved just before their insurer is declared in default. Because home insurance sits in the 90% general insurance tier, the FSCS calculation gives £18,000, leaving the policyholder to cover the remaining £2,000 themselves. If the same claim had been against compulsory motor cover instead, the full £20,000 would be protected. |
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This article is general information, not financial or legal advice. Rules and limits can change: always check the current position with the regulator or scheme concerned before relying on any figure here. |
Is my car insurance fully protected if my insurer goes bust?
Yes, third-party motor insurance is compulsory under UK law and is protected at 100% of the claim by the FSCS. Comprehensive elements of a motor policy that go beyond the compulsory minimum can still fall under the 90% general insurance tier, depending on how the claim is categorised.
Is home insurance protected if the insurer fails?
Home insurance is not compulsory under UK law, so it falls under the general insurance tier and is protected at 90% of the value of an eligible claim, not 100%.
Do I need to do anything if my insurer goes bust?
Policyholders do not usually need to take immediate action. The FSCS obtains the information it needs from the insolvency practitioner managing the failed firm and will contact affected customers directly about next steps.
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