Car insurance: why it's always best to shop around
A year goes by quickly, and when your car insurance policy comes up for renewal, let's face it, the easiest route is to stick with your current provider. But according to research carried out by Which? shopping around for a cheaper deal can save as much as 18%.
This is partly due to the fact that insurers use cheaper deals to entice new clients, explains Scott Kelly, head of motor insurance at gocompare.com. "You can't trust your insurer to give you a good deal on renewal," he says. "Often they offer a really cheap price in your first year, but the problem is that they are losing money in year one, so they have to make that money up and they will do that in year two or three, or by selling other products such as roadside assistance on top of the policy."
But by failing to shop around, you could also be missing out on a general trend in the motor insurance market. The most recent AA British Insurance Premium Index showed that the annual cost of motor cover had fallen by 12% over year on year, the biggest fall in prices in 20 years – so researching a cheaper deal may mean you pay considerably less than you did a year ago.
And a number of changes within the insurance industry have been happening which could affect your premiums. In the past, men typically had higher premiums than women because the costs of their claims tended to be higher. This is no longer allowed under EU gender equality law. "Men who have not changed insurance provider for some time could find their premiums are lower as a result," says Kelly.
Essentially, as a Which? spokeswoman puts it: "The cost of your car insurance can vary dramatically across the market, so it pays to shop around. Don't automatically accept the first renewal offer from your existing insurer as you may be able to find a better deal elsewhere."
Where do you start your search?
By far the most straightforward way for most people is to start with a price comparison website such as AOL Compare or smartphone app. It's simple to do – you enter your details, your car's details and a search will bring up a whole host of insurers offering to insure you.
But there are certain things to bear in mind. Firstly, one comparison site will not cover the entire market. Take the time to search on two or three comparison sites to ensure you get the broadest spread of deals available. "You may even find your current insurer shows up with a cheaper premium than you were offered for renewing your policy," says Kelly. "If this happens, you can phone them and negotiate and often you will find they will match the cheaper price."
Comparison sites may make certain assumptions about your choices, such as the level of excess you are willing to pay in the event of a claim. This can have a significant impact on premiums – generally speaking the higher the excess you are willing to accept, the lower the premium. But this may come back to bite you should you make a claim and find yourself with a big bill to pay.
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How do you choose what level of cover is right for you?
Whether you opt for fully comprehensive insurance, third party, fire and theft or the most basic level of over, third party only, depends entirely on your own circumstances and the level of risk you are happy to take. And whichever you choose, read the details carefully. One policy will not be identical to another, and that might explain a big difference in price.
What determines your premiums?
Your gender can no longer play a role in the setting of premiums, but a whole load of other things can. Your age, the make and model of your car, what you use it for (commuting, work and leisure, just leisure ...), where you live, whether you park the car on the street, on the driveway or in a garage, what you do for a living, how many miles you drive in a year, whether you have previous claims and speeding convictions, all of these can have an impact.
Certain insurers go for niche markets so you may find you can get a cheaper deal going through a specialist insurer if, say, you have a high number of driving convictions or claims. Younger drivers typically have higher premiums as they are less experienced and more prone to accidents, and insurers specialising in new drivers may offer the best deal.
What about black box insurance?
A number of insurers have introduced policies that use technology to monitor the way you drive and assess your premiums accordingly. If you prove to be a low risk driver, this can, at least in theory, result in cheaper insurance. Telematics, black box or smart box insurance involves fitting a device to a vehicle which will then provide information on when and where you travel, where you park, what speeds you drive at and so on.
These are often aimed at younger drivers and can be a good way to bring down those premium costs. If you think you drive well, respect the speed limits and don't drive at night, they may bring savings, says Kelly, who adds: "Some insurers place mileage restrictions on mileage so they are not suitable for people who cover large distances." Some also impose curfews and impose penalties to drivers on the roads at night time.
Why the cheapest is not necessarily the best
It pays to read the details of different policies carefully. Not all comprehensive policies are the same, and the cheapest premium may not offer what you need. Some will offer a courtesy car while repairs are being carried out, for example, but others will not.
Similarly, choosing the cheapest deal may mean sacrificing good customer service and claims handling. Avoid taking the premium at face value – always ensure you are comparing like with like, and ask around to see if friends and family have had good or bad experiences with certain insurers before committing. As ever, it's preferable to get the best value insurance rather than simply the cheapest.
"The flipside of reducing your premiums is that you may not have the full suite of add-ons you would like. We do recommend that, before you agree to any insurance product, you fully understand the policy," says David Connolly of the Money Advice Service.
I can pay for my insurance on a monthly basis – is it a good idea?
If you can afford to pay your full annual premium in one go, then that is probably the cheapest way to pay. Spreading the cost means paying an APR on top of your premiums. "You really should try to pay as a lump sum rather than over the course of the year," says Connolly, "as the APRs can be quite high."
Renewing with your old insurer may be the easiest option, but it almost certainly won't be the cheapest. So when your car insurance policy comes up for renewal, take a little time out to shop around. "Especially if you haven't changed insurers for a while," says Kelly. "If that's the case, you will be almost guaranteed to save money."
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