Buy­ing in­sur­ance monthly can dou­ble what you’ll pay

The Daily Telegraph - Your Money - - FRONT PAGE - Sam Barker

Mo­torists can end up spend­ing more than twice as much on their car in­sur­ance if they pay monthly rather than up­front – and most con­sumers are in the dark, ex­perts have warned.

Car and mo­tor­bike cover can be ex­pen­sive, so in­sur­ers of­fer pol­i­cy­hold­ers the op­tion of pay­ing in in­stal­ments if they can’t af­ford to pay up­front or if this method bet­ter suits their life­style.

It typ­i­cally costs more this way. The amount charged on top of the pre­mium is in­di­cated by the an­nual per­cent­age rate (APR).

In­sur­ers, brokers and pre­mium fi­nance com­pa­nies – which lend con­sumers the money to buy the cover – can all have a part in set­ting the APR. But these firms can charge cus­tomers huge amounts for the priv­i­lege.

Tele­graph Money un­der­stands that the high­est APR on the mar­ket last month was 145pc, which was at­tached to a GoSkippy car in­sur­ance pol­icy. This means a £500 pol­icy would have ended up cost­ing £1,225 – an ex­tra £725 a year, con­sid­er­ably more than the cost of the pol­icy it­self – if paid in monthly in­stal­ments.

GoSkippy, a bro­ker, is a brand of El­don In­sur­ance, which is owned by Ar­ron Banks, the busi­ness­man and founder of the Leave.EU cam­paign.

An El­don In­sur­ance spokesman de­clined to com­ment.

Con­sumer In­tel­li­gence, the mar­ket re­search firm, said the av­er­age APR for car in­sur­ance was 30.9pc, mean­ing a £500 pre­mium would cost £654.50 over the year to pay off monthly. The low­est car in­sur­ance APR cur­rently on the mar­ket is 8pc, which would add £40 to a £500 pol­icy paid for in in­stal­ments.

Around a quar­ter, or 27pc, of mo­torists pay for car in­sur­ance monthly.

Ex­perts have warned that most driv­ers do not un­der­stand how APRs work, de­spite the Fi­nan­cial Con­duct Au­thor­ity (FCA), the City reg­u­la­tor, say­ing in 2015 that in­sur­ance firms needed to be clearer about the mat­ter.

At the time, the FCA found that sell­ers of car and home in­sur­ance were not al­ways trans­par­ent about the costs in­volved. The reg­u­la­tor added that some buy­ers did not even re­alise they would pay more to buy cover monthly.

A poll of 1,074 driv­ers car­ried out by Con­sumer In­tel­li­gence for Tele­graph Money this week found that 82pc of re­spon­dents did not know the APR on their pol­icy.

Mar­tyn James of Re­solver, an on­line com­plaints ser­vice, said: “The vast ma­jor­ity of peo­ple don’t un­der­stand how APRs work. There are lots of won­der­ful things about the in­sur­ance in­dus­try, but they don’t al­ways cover them­selves in glory when it comes to things like this.”

Ian Hughes, chief ex­ec­u­tive of Con­sumer In­tel­li­gence, said cus­tomers could avoid such high ad­di­tional pay­ments by tak­ing out a credit card with a lower APR than an in­sur­ance firm would charge, then pay­ing their pre­mium up­front.

He said: “Fol­low­ing the ban on credit card sur­charges in Jan­uary, the smartest move for those who want to pay monthly is to pay in a lump sum on a credit card, and pay that off over time.”

The As­so­ci­a­tion of Bri­tish In­sur­ers said cus­tomers should shop around to make sure they got the best deal. A spokesman said: “Pay­ing by in­stal­ments helps cus­tomers spread their in­sur­ance costs by en­ter­ing a credit agree­ment. In­sur­ers fol­low the same strict rules as all firms of­fer­ing other forms of lend­ing.”

But Con­sumer In­tel­li­gence found that buy­ers who wanted to pay for in­sur­ance monthly were also the most likely to stay with the same in­surer and not shop around.

Many in­sur­ers have been making an in­creas­ing amount of profit from cus­tomers pay­ing monthly.

In the first half of this year, Ad­mi­ral Group made £39.4m profit from this, up from £23.8m in the same pe­riod last year. An Ad­mi­ral spokesman said: “We are com­mit­ted to of­fer­ing fair and trans­par­ent prices to all cus­tomers. We clearly com­mu­ni­cate what the price will be should they choose to pay by in­stal­ments or as a one-off pay­ment.”

Pay­ing in in­stal­ments can drive up costs

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