Accidents will happen

Last month Hollywood starlet of OC fame, Mischa Barton, had a little run in with another car’s bumper. Unfortunately for Mischa, it wasn’t even her car she was driving – it was her Hollywood friend Nicole Riche’s Mercedes SUV…

Both car and driver were well insured so there was no real harm done in the end. And of course both could easily afford their insurance.

However for millions of us getting the most out of car insurance for the lowest cost is a real challenge. Average annual premiums for comprehensive cover are currently at an all-time high of more than £800 which is a substantial slice out of anyone’s money.

And when you’ve finally found the right policy for you, ever higher premiums make taking the plunge that little bit more difficult. Insurers offer customers the option of spreading payments by direct debit to lighten the load. However the option to spread your payments comes at a price and the reality is that you’ll pay as much as 37% more for your insurance just for the privilege.

Not having Mischa’s spending power means most of us have to watch the pennies when looking for insurance. So is here to take you through the direct debit trap so you know the options before you buy.

Direct debit danger

When you take out a new car insurance policy you can normally pay either up front or by monthly instalments via direct debit. With the average comprehensive insurance policy coming in at £806 it’s no wonder that 18.5 million people opted for direct debit last year. Spreading the cost makes sense and means you don’t have to worry about a cash shortfall at the end of the month.

So what’s all the fuss about? Well, if you pay by direct debit you’ll invariably end up paying more. Research across the market revealed that only one in twelve motor insurers did not charge extra for paying by direct debit. On average the extra amount charged was 22.7% and given that the average policy costs £806, this means you could end up paying an extra £182 for the privilege of spreading the cost.

That’s a rip-off

There’s a good reason why insurers will charge you extra. If you haven’t paid the full premium then they take the view that they are essentially loaning you the cover. If you were to have an accident having only paid your first month’s cover then they would still have pay out in full despite having only a twelfth of your money in the bank.

Beating the direct debit trap

It is possible to escape this extra charge, but you will have to search the market to find these companies. At present Virgin Money,, Heyday and Norwich Union on its Just Car policy exclude the charge. Age Concern and Saga also waive the charge although of course their policies are not available to all drivers.

It’s not just the car

Insurers employ the same tactic on other forms of insurance. Between them the UK population has around 19.5 million home contents policy holders. Insurers aren’t quite as hard on the home insurance however. Only 49% of them charge extra for the privilege of direct debit payment those who do charge still ask for a chunky 19% extra.

The key to making a saving on insurance is to look around. If you don’t find out what’s on offer then it’s likely you won’t get the best deal. Use to compare the market for you.

Next time you go to take out a policy you should be informed of the direct debit cost. Ask how much it is in advance. If you can afford to pay up front, then the saving will be there in the long run. Accidents will happen, so it’ s important to be prepared so if you do hit someone else’s bumper you’ll still be able to claim like Mischa!

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