The Hidden Costs Of Car Insurance

Posted on: 01 October 2008 by Gareth Hargreaves

Getting your car insured can be costly. We show you how to get the cheapest deal and avoid sneaky extra hidden costs.


The cost of car insurance is rising, with £20 being added to the price of an average comprehensive policy in the three months running up to June 2008. So it’s vital to shop around and get yourself the best deal.

We’ll show you how to keep your renewal cost down and steer clear of paying fees for avoidable little extras, such as charges for paying by instalments or even changing your name and address.

Car insurance policies are often riddled with clauses that mean you have to cough up some cash whenever you adjust simple details or would like to cancel your deal.

It pays to check the items that can incur fees. Check out our guide to understand the small print when applying for a new policy, and what you need to avoid in order to steer clear of the unnecessary penalties.

What Is Instalment Interest?

If you thought that paying for your car insurance by monthly instalments was a good way to spread the cost, you’d be wrong. Lots of insurers will make you pay through the nose for the privilege. We’ve found insurers charging an annual percentage rate (APR) of anything from 6 to 29 per cent, with charges averaging out at 18 per cent.

If you can get your hands on the cash, pay the whole premium in one go. If that’s a struggle, you could think about paying for it using a credit card which has a 0% rate for purchases, and paying that off monthly instead.

Asda were the worst offenders for instalment interest with 29 per cent APR, while Age Concern, Barclays and Virgin don’t charge anything for paying monthly, and Saga doesn’t charge if you buy online, although it’s 18.4% if you don’t. Saga and Age Concern are well worth a look for mature drivers.

What Are Cancellation Fees?

If you have to cancel your policy part way through, for example because you’ve sold your car, many companies will charge you a fee. This tends to be between £25 and £35, although it can be as high as £50 or one month’s premium.

Churchill and Cornhill Direct are the worst offenders, charging £50 for cancelling your policy. Esure, Halifax, Sainsbury’s and Zurich all charge £50 in the first year, and less in subsequent years.

Barclays, Clydesdale Bank, Hastings, Marks & Spencer, Yorkshire Bank and Yorkshire BS all let you cancel your policy without charge. Swiftcover also doesn’t charge and returns a percentage of your unused premiums within the first 300 days.

What Are Change Of Address Fees?

Several companies will charge up to £25 to change your address, even if it doesn’t affect your premium. Asda, Budget, Castle Cover, Dial Direct, Ibuyeco and QuoteMart all charge £25.

Those that don’t charge include AA, Age Concern, Barclays, Clydesdale Bank, Cornhill Direct, Intune, Yorkshire Bank, First Direct, LV=, M&S, Yorkshire BS and Zurich. Swiftcover doesn’t charge for changes made online.

What Are Admin Fees?

Change your car, a driver’s name or ask for a copy of your policy - all could incur a fee of around £10.

Asda charges £20 for duplicate documents and the AA Charges up to £25 for ‘adjustments’.

Best buys that don’t charge these fees are Admiral, Clydesdale Bank, Cornhill Direct, Elephant, Esure, Halifax, Marks & Spencer, Yorkshire Bank, Yorkshire BS and Zurich.

It’s worth noting that Asda charges all of these fees and, at 29 per cent, has one of the highest APRs for paying monthly.

Your Car Insurance Checklist

  • Shop Around - Use price comparison websites such as www.moneysupermarket.com and www.gocompare.com to check the prices and policies to see if you can find yourself a lower quote. When renewing your insurance most people can save up to 10 per cent on their previous quotes but you can also find quotes as much as a third lower, saving you up to £130.
  • Haggle - Once you’ve found your best quote, ring your current insurer and see if it can beat it. To get the best price, don’t tell the insurer how much your quotes are. If you reveal you’ve got a quote of £270, it will almost certainly quote you something similar whereas asking for the ‘best quote’ might get your cover as low as £250. It’s worth a try.
  • Switch - if your current insurer can’t beat the best quote you’ve had, it’s time to switch. It’s straightforward moving to a new provider - and there’s no reward for loyalty in this game.
  • Buy Online - A typical discount for buying online is 10 per cent, bringing your £270 quote down to £243.
  • Check Out Cashback Sites - Cashback sites typically give you between £30 and £50 cashback, and sometimes as much as £75, if you click through the paid links to buy your insurance. Not all insurers are included, and it’s not worth choosing your insurance just because of a cashback site, but once you’ve decided on an insurer it’s worth looking to see if you can get cashback. Some of the main sites are www.topcashback.co.uk, www.quidco.com and www.wepromiseto.co.uk.
  • Pay In One Go - Pay for your insurance upfront and you can save money by not paying interest when you pay by monthly instalments. An average APR of 18 per cent on your £243 premium would cost you an extra £44.
  • Lower Your Risk - Make sure your premiums are as cheap as they can be, by taking all the steps you can to minimise the risk of having to make a claim. Keep your car in a garage or park it off the road if you can, and don’t overestimate your mileage, otherwise you’ll end up paying for miles you don’t drive.
  • Don’t Pay For Extras You Don’t Need - If you don’t think you’ll need a courtesy car or legal expenses insurance, for example, make sure you’re not paying for them.
  • Increase Your Excess - Agreeing to pay an additional voluntary excess could reduce your premium. Increasing your excess from £100 to £200 could reduce your premium by as much as 10 per cent.

Web Links

Money Supermarket - The price comparison website.

Go Compare - Compare car insurance quotes.

Top Cash Back - Cashback site.

Money Saving Sites - Price comparison and other websites to get the best deal on insurance and more.

Where do you buy your car insurance? Did you save money on your car insurance this year? Have you any stories of poor customer service from any insurance company?

Let us know by leaving a comment in the box below. Alternatively, share your thoughts with other readers in the 50connect forums.

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