How to uncover hidden costs before buying car insurance
Article by Simon Christopher
Article added: 8/10/2010 - Last updated: -
Rating: 3.00 (5 votes)
In theory its easy to choose a car insurer based on price: you simply look to see which offers the lowest premium for your circumstances, make your payment, and sit back with both peace of mind and some spare cash.
In reality, there are a host of hidden costs, both for specific incidents and for all policyholders. Here are three of the most important things you need to look out for to make sure you compare the true costs.
Which? Money recently found almost two-thirds of companies charge a fee for cancelling a policy, rather than simply refunding the "unused" portion of your premiums. The average fee was £40, though some providers charged up to £85.
Other providers, while not having a flat fee, use systems that don't refund the premium proportionally. This could mean somebody cancelling half-way through a one year period only gets 20% or so of the premium, and somebody with less than three months to go might not get any money back. Again, it's hard to know if you'll ever need to worry about this, but it does mean that if you know you'll not need insurance for a full year (for example, if you are moving abroad), you can't simply take out a full-year's insurance and expect to cancel without any penalty.
Monthly Premium Interest
While many drivers find it convenient to pay annual premiums in the form of a monthly direct debit, such packages vary immensely in cost. While some providers charge no interest for such facilities, others charge very uncompetitive rates: as much as 37% in the Which? survey. While this shouldn't mean you rule out an otherwise good value policy, you should consider whether it might be cheaper to borrow the money and pay the entire premium up front. Remember that if you get the cash via an overdraft or credit card, you'll only pay interest until you can afford to pay the money back. If you sign up to monthly payments with the insurer, you're locked in to the full year's interest charges.
The Which? survey looked at 151 car insurance providers and discovered that 105 apply a charge for amending your policy. This can cover simple changes such as adding a named driver, or even changing your address if you move house. The highest fee among the surveyed firms was £55.
While it's sometimes hard to predict if you'll need to amend a policy, if you know you'll be moving house in the next few months, it may be worth looking at amendment fees as this could make the difference between two closely-priced policies.
PLEASE NOTE: The guidance published in this article is for information only and does not constitute financial advice or a recommendation of any particular car insurance product or company. If you are in any doubt please consult an independent insurance adviser. A database of advisers in your area is available at www.unbiased.co.uk
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