How to save money on your car insurance

While many of the items we buy have become more expensive of late, car insurance premiums for British drivers have been falling for some time. That's because people have not been driving as much, so there have been fewer claims.

Car owners who stick with the same insurer year after year will have probably missed out on this trend, though, and seen their premiums increase instead (at least until the start of this year). This is due to a practice called ‘price walking’, whereby premiums increase automatically each year.

According to some estimates, a car owner who has stuck with the same insurer for the last 15 to 20 years could be paying 75% more than someone who has just switched to the same company under the same terms.

However, the Financial Conduct Authority (FCA) has now introduced new rules that are intended to protect consumers from having to pay this ‘insurance loyalty premium’.

From 1 January 2022, car and home insurers are no longer allowed to charge existing customers more at renewal time than they would a new customer for the same cover. The FCA estimates that the ban will save car and home insurance customers £3.7 billion over 10 years.

That’s good news for them, but also means that the 40% of car owners who do try to find the cheapest deal by switching provider each year are likely to struggle to save as much as in the past – and could even face higher premiums. Insurers are increasing prices overall to make up for the revenue lost from automatic renewals.

There are still ways to make substantial savings, though, and the most lucrative tactic is to plan ahead. If you buy cover up to four weeks before you need the policy to start, you could save more than a third on the cost of a non-black box insurance policy.

We researched the cost of annual cover for a 20-year-old male driving our 2021 Used Small Car of the Year, the Skoda Fabia 1.0 95 SE, comparing seven different online sources. Liverpool Victoria (LV=) quoted £2229 if the policy was to start on the same day, but that figure dropped to £1475 when the start date was deferred for four weeks.

While the deferred LV= quote offered the greatest reduction, it’s clear that you don’t need to leave it four weeks to make savings. The majority of the sites we checked reduced their quotes by between 19% and 32% on policies booked two weeks in advance.

Quotes from most of the other websites we checked dropped by even more when we entered a start date up to four weeks in advance (typically the furthest ahead you can buy car insurance). Only Aviva, which states that its quotes are fixed and not date dependent, didn’t offer a lower deferred premium.

New drivers will feel the extra cost of immediate cover especially keenly, and the prospect of waiting for at least a fortnight between passing their test and hitting the road will be hard to bear. To ease the pain in those circumstances, we recommend finding a cheaper policy with a fairly long start date then investigating the cost of buying a short-term policy for cover in the meantime.

Best prices from leading insurance providers

*Cover is for a 2021 Skoda Fabia 1.0 95 SE covering 7000 miles a year. The driver is a 20-year-old single male living in West Wickham, Kent. Quotes obtained on 29 November 2021

Other money-saving tips 

Shop around 

Although the changes effective from 1 January 2022 mean savings might not be as big as before, it’s still worth checking renewal prices on the main comparison websites, as well as the sites of insurance companies that don’t appear on comparison sites, such as Aviva and Direct Line.

It’s worth checking for deals even if your insurance isn’t up for renewal soon. The fee to cancel your existing policy is likely to be £50 or less, so if you can save significantly more than that by switching to a new policy, you’ll still be better off.

Once you do find a cheap quote, you need to snap it up quickly because some insurers only offer the best prices for as little as 24 hours, After that time, the cost of the premium can rise markedly if you leave it for a day and go back to it, even though none of your details have changed.

Pay annually 

The annual cost of car insurance can seem daunting, but it’s worth paying for it up front if you can because interest rates for paying by monthly instalments can be as high as 30% APR, and that could add hundreds to your overall bill. If you don’t have cash in the bank to pay for the cover, consider using a credit card with a low or zero percent interest rate for purchases, which is likely to be cheaper than the interest rate charged by the insurer.

Another reason to avoid monthly instalments is that you’re effectively taking out a loan with the insurance company, who will run a ‘hard’ credit check that will be visible on your record and could affect how other lenders treat you. If you pay for your insurance up front, the insurer will only do a ‘soft search’ on your credit history to confirm your address and other personal information, and this won’t affect your credit score or be visible to other companies.

Pick your profession carefully 

Although you can’t lie about what you do for a living, there may be a number of ways to describe your job, so play about with the options on a couple of websites to see how much you could save. Declaring your occasional job can help, too – adding a part-time teaching assistant’s job to our full-time student Fabia driver’s profile cut his premium with Axa (via GoCompare) by £40.

Raise or lower the excess 

If you’re not too risk-averse, you could opt to increase the voluntary excess (the portion of a claim that you pay) in order to reduce your premium. However, it’s not always worth raising the excess too much. For instance, if your excess is £1000 on a policy for an older car, you might not get any payout at all in the event of the car being written off.

More cover costs less 

There are three main levels of car insurance: third party, which only pays out to the other person if you’re involved in an accident; third party, fire and theft, which also covers those two additional causes of accidental damage or loss; and comprehensive, which also covers most causes of accidental damage.

It might sound strange, but buying comprehensive cover, rather than third party, fire and theft, often works out cheaper. That’s because insurers price policies according to how much they’re paying out to those taking out that type of cover. With younger, less experienced drivers (who tend to have the most accidents) accounting for many third-party policies, such cover can prove more expensive than comprehensive. In fact, new drivers may only find it possible to get comprehensive cover.

Add a named driver 

When arranging a policy for a younger driver, it’s worth adding an older, experienced driver with a blemish-free driving history. When we added a 56-year-old female driver with no claims or convictions and a long no-claims bonus to our Fabia driver’s policy, it shaved £144 off the premium.

Get some extra training

Some insurers offer discounts of up to 30% to drivers who’ve taken extra training. Certain courses, such as the advanced driving course run by IAM RoadSmart, unlock reduced premiums via their own bespoke insurance services.

Use a dash cam 

Some insurers will offer a discount to drivers who have a dashcam in their car. Even if you don’t get money off, it’s worth considering getting one because it could provide useful information about who was at fault in an accident. That said, some insurers will demand that you pay back any discount given for having a dashcam if you are involved in an accident but can't provide footage.

Read more: Best dash cams reviewed and rated

Protect your no-claims bonus 

Although this could add a significant amount to your cover, it will ensure that making a claim won’t cost you at renewal time. Adding no-claims bonus cover to our young driver’s policy would cost £120 for the year, but means that he will still be able to declare a full year with no claims next time he renews, even if he has made a claim in the interim. That equates to a potential saving of around £400.

Secure your car

Fitting a Thatcham-approved alarm, immobiliser or tracking device can get you an insurance discount of around 5%. Many newer cars have these as standard, so check if your car has them and make sure you declare them. Even if you can’t recoup the costs through your insurance, a deterrent for thieves could save you the hassle of having to claim for your car being stolen further down the line.

Alternatively, pay by the mile

In 2020, the average annual mileage of private car owners in the UK dipped to 6700 miles, according to data from the Department for Transport. This is due to lifestyle changes – including the increased adoption of working from home – brought about by the coronavirus pandemic, and means many more people are now classed as low-mileage drivers (covering no more than 6500 miles a year), and should pay less for car insurance.

By Miles is one mileage-based car insurance product that bases premiums on the number of miles travelled. If our 20-year-old driver covered only 3500 miles a year, he’d pay £574 up front on a By Miles policy, then £43 a month to cover his expected 291 monthly miles, for a total cost of £1096 – much lower than the quotes based on 6000 miles a year.

The mileage is measured by a tracking device, and if he covers fewer miles, he’ll pay less. If he drives further, the cost will rise. However, if he covers 6000 miles, the By Miles policy’s monthly fee rises to £74.50, bringing the total payable up to £1468 – a cost that’s similar to most of the other quotes.

Next: What type of car insurance should you buy? >>

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