Five-minute guide to car insurance

28 September 2010

Car insurance costs have been rising so fast recently that it has been singled out as a major factor fuelling inflation. The AA calculates that between April and June 2010 the average premium rose to £704, an increase of 12% on the first three months of the year.

This means it's more important than ever to shave every penny you can from your premium. Here we answer some common queries to help you save money without jeopardising your claim.

I've found the cheapest provider, but how can I get it to give me an even better deal?

Insurers are much less susceptible to haggling these days, but it's still worth asking – they might throw in free breakdown cover, for example. Be honest about how secure your car is and ask if fitting a Thatcham (insurance industry-approved) alarm will save you more.

And when you mention your no-claims discount, try reducing the mileage – cutting it to 6,000 a year, for example, could lower the premium.

What else works?

Don't assume third-party insurance (where you're insured against other people's mistakes but not your own) will be cheaper. Fewer underwriters offer it, so the wider choice of fully comprehensive insurance offers can ultimately work out cheaper.

Another counter-intuitive move is to add another driver – if they're mature and conviction-free, it can help cut the bill.

Be specific about your job title: insurers make assumptions about the likelihood of you having an accident on the basis of your occupation.

For example, jobs likely to raise your stress levels will affect your premium. But there are subtle differences – for example, a nurse pays £630 a year, but a paramedic will pay £580.

Finally, don't worry about legal expenses cover. If you're involved in a no-fault accident, the company will sell your details on to a lawyer who will be happy to work on a no-win, no-fee basis.

Are there any hidden costs?

Definitely. Because car insurance costs are pretty much fixed across the board, cheap brokers have to make their money somehow, usually through hidden charges.

The provider will have a ‘schedule of fees', which will include such things as change of address or cancellation fees – so comb through the small print or ask for the schedule over the phone.

Chances are you'll be hit with fees whatever the cost of the premium, so if you're planning to move home, for example, try and agree a waiver before signing up.

Changing cars is another whack you'll have to suffer – if you can't time it with a policy change, see if the provider will waive or lower the fee.

Is it cheaper to pay in instalments?

It's always better to pay up front. If you pay monthly, the broker has to find a finance provider as well as farm out the insuring to an underwriter, incurring fees as well as interest payments. Back in 2008, uSwitch found that instalment-payers forked out on average an extra £50 a year.

And don't assume it will be easier to reclaim your money if you cancel; the provider will usually have a clause locking you in for the full year.

Oh, never mind! My old insurer has automatically renewed my premium

Customer inertia is the brokers' best friend. In theory, if you haven't moved, made a claim or changed cars, your premium should go down. However, year two is when the company doesn't have to make any offers to entice you in, and without these, the premium will always rise.

But, whatever you do, make sure you don't leave your car uninsured: a new law is due next February that links the insurance database with that of the DVLA, so you'll swiftly receive a warning, followed by a £100 fine.

How to make sure your claim is paid out

Brokers will go through your policy details to check for discrepancies. Common mistakes include not telling insurers about car modifications – these can be as simple as buying alloy wheels that are slightly different from the standard set.

It's best to be open about everything, including any no-fault accidents – amazingly, these can actually bump up your premium.


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