The pros and cons of monthly car insurance

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Car insurance is one of those necessary expenses which can be a real pain in your pocket. At a time when fuel prices are going through the roof, having to fork out hundreds – or sometimes thousands of pounds a year if you are a young or inexperienced driver – for car insurance is yet another financial blow that motorists just don’t need.

However, like it or not, car insurance is crucial, and it’s illegal to drive without it. Under rules introduced in June 2011, known as Continuous Insurance Enforcement (CIE), unless you have officially registered your vehicle as being off the road with the DVLA, it must be insured. Failure to have insurance could result in a fine of up to £1,000.

So how can drivers ease the financial burden of paying for cover? One of the most obvious ways to make the cost of car insurance more manageable is to spread the cost of premiums over a period of time. Insurers usually offer the choice of paying up-front for your insurance with a lump sum, or paying monthly in twelve separate instalments. Relatively few people are in the fortunate position of being able to pay for their car insurance in one go, and paying monthly can help soften the blow of those often steep premiums. Setting up a Direct Debit to pay your insurer each month means the money will be transferred automatically with the minimum of hassle.

It can also help you budget more effectively. A lump sum suddenly disappearing from your account can throw your finances into disarray at renewal time, whereas if small manageable amounts are taken each month, you should hopefully be able to cover these out of your income. However, paying monthly is not without its drawbacks.  Some insurers slap on as much as 10% extra onto the cost of your cover just for the privilege of paying monthly, so while paying this way might be more manageable, it certainly isn’t the most cost-effective way to buy cover. The additional costs are interest payments – insurers argue that because you aren’t paying the full amount up-front, they need to charge interest on monthly premiums so they don’t lose out.

Other ways to cut the cost of cover

If you do opt spread the cost of your car insurance over 12 months, it can still be difficult to pay for premiums. That’s why it’s important to remember there are plenty things you can do to help reduce the cost of your motor insurance. Even just being a careful driver and building up your No Claims Discount (NCD) will help keep costs down. If you have built up five years' NCDs, it can reduce your premiums by as much as 75%. Another way to keep premiums low is by opting to pay a higher excess.

The excess is the portion of any insurance claim which you pay yourself. However, while doing this can substantially reduce the cost of cover, you must be certain that you can still afford to make a claim. Adding a more experienced named driver to your policy may also lower the cost of premiums. Remember, though, that it is illegal to falsely declare that they are the main driver of the vehicle. This is known as ‘fronting’ and can not only invalidate your insurance but can lead to a fine and penalty points on your licence, so it should be avoided at all costs. When buying cover, be accurate about your mileage so that you don’t end up paying extra for miles you are not covering in your car.

Try and work out how many miles you will genuinely cover - but don't get it wrong as inaccuracy could jeopardise your claim.

Save and secure

See if you can improve security measures too. For example, fitting an insurer approved alarm and immobiliser should result in lower premiums, with some insurers offering discounts of 5% once an alarm is installed. Similarly, if you can keep your car in a garage, insurance costs will be lower as there is less likelihood of your car getting stolen. Don’t make modifications to your car either. These will bump up the cost of cover as if your car is damaged in an accident the cost of replacing things such as alloy wheels will be more expensive than replacing conventional wheels.

Shop around

Finally, if you have set up a Direct Debit for your car insurance, don’t just automatically accept your renewal quote and let it roll on into next year without first seeing if cheaper cover is available elsewhere. Premiums vary widely depending on which insurer you go to, so it’s always sensible to compare a wide range of quotes before choosing a policy.

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