How to spread the cost of insurance

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It's no secret that insurance policies can be costly, especially if you have more than one to take out in one go. And even when a competitive policy has been pinned down, paying out your premium in one go can seriously dent your finances.

According to the Association of British Insurers (ABI), the UK general insurance industry - which deals with motor, property, accident, health, liability and pet insurance - received £46.8 billion in net written premiums over 2012.


On average premiums ranged from £200 to £650 a year on these policies.

So if you are facing insurance premium overload here are a few ways to spread the cost.

Third-party premium finance
When you take out a contract of insurance and the up-front cost is just too high, one option is to arrange premium finance to split the lump sum into manageable monthly repayments.

Third-party premium finance involves a company paying the cost of your policy, on your behalf, upfront to the insurer and then collecting monthly repayments back from you.

You can get third-party premium finance arranged by an insurance broker or through the insurance company.

A charge for the credit is applied, which means you pay more for paying in instalments than if you paid upfront. The charges vary from company to company, but according to the Financial Conduct Authority (FCA) deals found via brokers can cost between 11% and 20%.

One of the benefits of premium finance is that you can combine multiple insurance premiums and pay a single premium to one company.

Leading companies that operate in this space include Close Premium Finance, which claims it pioneered the market in 1977, and Premium Credit, which claims to be the number one premium finance company in the UK.

Premium Credit has been around for 23 years, has 1.8 million customers and advanced £3.3 billion in 2012. It specialises in arranging finance not just for insurance but also annual fees for things like golf club memberships, football club season tickets and even school fees.

Insurer premium finance
Third-party premium finance can be useful, however, according to a recent report from the FCA, the average APR on third-party premium finance was much higher than that charged for insurer-financed plans.

Insurer-financed plans were found to charge APRs at around 5%, while the most common APRs offered by third-party premium finance providers ranged from 11% to 20%. So it is worth double checking if the insurer has its own financing option you can compare against.

Cheap personal loans
Depending on how much you need to stump up for your insurance premiums, a personal loan could work out cheaper than other forms of finance.

With a personal loan you can borrow lump sums over a number of years and arrange to pay a fixed monthly repayment.

Rates fluctuate on these deals depending on how much you want to borrow and for how long, but at the moment lenders are offering rates as low as 4.9%.

You can take a look at the leading rates using our comparison tables.

Interest-free credit cards
A 0% purchase credit card could help you pay the lump sum needed for your insurance upfront.
The leading credit card in this market comes from Tesco. The Tesco Clubcard Credit Card for Purchases gives you a whopping 18 months interest-free.

The next best deals come from Halifax (17 months), Fluid (16 months) Halifax again and M&S (15 months).

As long as you design a plan on how to repay what you spend within the interest-free period you won't have to pay anything more. So it's potentially the cheapest way to borrow if you plan it right.

0% overdrafts
Some current accounts offer 0% overdrafts which can mean you borrow fee-free.

Nationwide is offering a 12-month fee-free overdraft with its Flex Direct account, while Halifax is offering a six-month fee-free overdraft with its Reward Current Account and the Santander 123 Current Account has a four-month option.

A longer-term option is available with First Direct's 1st Account, which has a £250 fee-free overdraft for as long as you have the account.

Getting the best price
According to the ABI 90% of the 26.4 million households in the UK have at least one insurance policy.
So chances are you will have to hunt around for an insurance quote at some point during the year.

Lovemoney.com can help you find the best deals on life, car, home and travel.

Visit our comparison centres on AOL for help with your quote.