These days you can insure just about anything, UFO Abduction & Casualty insurance Co for example will pay out $10,000,000 to cover medical and psychiatric care if you can prove that you’ve been abducted by aliens.
All forms of insurance incur a cost, and whether you’re insuring your house, your car or your next trip to Mars the prices will vary depending on how you pay for the policy.
Paying for peace of mind
Most insurance policies are paid for in one of two ways, either up front or by direct debit. The amount you pay depends on which option you choose.
Take car insurance as an example, MoneyExpert has found that paying by direct debit will cost on average, an additional 37%. With standard car insurance policies already costing £762, paying by direct debit could mean that you end up shelling out as much as £1043, or an additional £281.
If you happen to fall into a higher cost brackets such as, younger driver, or a driver with a flashy car and are paying in the region of £1000 a year for your premium, paying by direct debit could mean that you add an additional £370.
Only 14% of the car insurance policies available have a flat rate cost for direct debit and upfront payments meaning that you’re almost always be better off paying for your policy upfront, which may be fine for pet or travel insurance, but when the cost runs as high as a thousand pounds for policy’s on your car or property this won’t be affordable for everybody.
A fair approach?
insurance companies employ this charging method across the board and justify it because of the level of risk they perceive themselves to be taking on. If you’ve paid three instalments towards your home contents cover for the year and your house gets flooded in March the insurance company will be have to pay out thousands of pounds despite the fact you’ve only paid one quarter of the policy’s cost.
The extra amount that insurers charge for payments by direct debit may seem like a lot and it’s something you can avoid if you shop around enough. You will have to read through the fine print on payment options however if you want to spread the cost over the year and avoid any additional costs.
If you find that the policy you want charges extra for direct debit payments, it is still possible to snap it up the policy at a bargain price. Go online to see if the policy is available there. MoneyExpert research indicates that insurance premiums are around 35% cheaper online while insurers avoid the cost of having to process of having to manually process your application.
With car insurance a legal requirement and home building and contents being taken up by the vast majority of people you’ll have to make the decision whether to pay by direct debit or up front at some point. There’s no harm in spreading the cost of your policy over the year, you’ll receive just the same level of cover, but if you can avoid it look to take up a policy which doesn’t charge extra for this. Go online and find out as much about each policy as you can, and if there is an online discount available, be sure to snap it up!