True cost of car insurance
What’s good for the goose?
Having the roof of your prized Mini Cooper smashed by a falling goose, knocked from the sky by a passing meteorite may not be the kind of eventuality written into every standard insurance policy.
But postman Adrian Mannion will be hoping he’s covered after the unfortunate bird caused £2,500 of damage recently.
Mr and Mrs Mannion heard a 9llb space rock hit their driveway, followed instantly by the Canada Goose smashing into their car. Given the timing of the collision the unlikely explanation seems to be the only one.
Clearly this freakish incident goes to show you never know what to expect on the roads, and with annual insurance premiums climbing by the month, paying for a year’s policy in one lump can seem a speculative investment. But are the monthly, direct debit options such a neat solution? MoneyExpert.com reveals the true cost of paying monthly.
Not so quick and easy
As premiums shoot up it can be tempting to opt for a monthly payment option thereby spreading the cost and keeping some much required cash in the bank.
Unfortunately, while most companies will offer a discount for paying via direct debit, the insurance industry does the opposite. And it’s easy to see why. If they have to pay out a hefty sum after only one month’s instalment they’re effectively loaning you the sum for the rest of the year’s cover while losing out themselves.
However, some of the rates they charge for the privilege of paying monthly far outstrip typical interest rates, and consequently can put a real sting in the tail of your insurance bill.
According to MoneyExpert.com research the average charge is around 22.7 per cent, and is unlikely to be cut. With that rate alone an annual comprehensive policy costing £806 would mean a massive £182 extra if you opted to pay monthly.
Get me out of here
Another pitfall of the monthly payment scheme is that while it may suit you if require insurance over a limited period, if you plan to sell your car for example, you’ll often be charged for cancelling the policy before the year’s out. If the monthly option’s more a practical than financial step then you need to check for any cancellation fees before going ahead.
What to do
If paying one big lump sum for your car insurance is going to prove too much of a financial strain then there are ways around it. Roughly only one in 12 insurance policies
don’t charge extra for direct debit payments but with so many out there that still gives you a decent number to choose from. Those to look at include Virgin Money, Insure.co.uk, Heyday, and Norwich Union amongst others.
However, it may well be that your best deal isn’t available with a direct debit option. In that case you may be able to pay the lump sum by taking out a credit card, then simply repaying the debt on the card with monthly instalments. Average APRs on credit cards, around 16%, is considerably lower anyway than the average charged by those insurers offering direct debit. If you can find a credit card with a decent new purchases deal then all the better.
Whilst offering a monthly payment scheme that doesn’t charge you, Norwich Union also offers a pay as you drive policy, whereby you pay according to how much you use your car. Their policy is comprised of a fixed monthly payment and a variable part that slides according to how far, and where, you’ve driven in the past month. All your miles are clocked by a Global Positioning System that Norwich Union fit, and according to them if you drive less than 6,000 miles a year you could save up to 30%.