Will the new car affect your premium?
If you’re changing your car, there’s a good chance it’ll affect the price of your policy one way or another. Indeed, you may well want to take the cost of insuring the new vehicle into account when you’re choosing the make and model.
It’s a good idea to make a note of the cars you’re interested in while you’re browsing the internet or trooping around dealer forecourts. Jot down the make, model, spec and engine size, and then run a car insurance quote with MoneySuperMarket to get an idea of what you should expect to be paying in annual premiums.
If you’re looking at buying a pre-registered car, you can just make a note of the registration number and get your quotes using this.
The chances are you’ll pay a higher premium if your new car is of a higher spec, more powerful or just more expensive than your existing one.
If you upgrade or otherwise amend your current policy, you’ll most likely have to pay the dreaded ‘administration fee’ (which could be anything between £30 and £60, check the policy T&Cs) to change the details. If you’ve any other details that need amending, such as a change of job or the addition of a named driver, you should do this now to save paying the admin fee again.
If you pay for your insurance in monthly instalments, you’ll probably be able to spread this fee over the remainder of your policy by adding it to the monthly payments – but remember that most instalment arrangements charge interest, so you’ll pay extra for the privilege.
Should you cancel your policy instead?
Instead of transferring cover from your old vehicle to your new one, another option is to cancel your existing policy and then set up a new one with whichever insurer offers the lowest quote.
However, there are potential drawbacks to cancelling your policy, one such snag being you won’t gain any No Claims Discount (NCD) for that year as this is only given out once the policy has run its 12-month course. (The only exception to this would be if you have a policy with a no claims bonus accelerator, in which case you may get a full year’s NCD after 10 months.)
To find out more on NCD, check out Mark Hooson’s article Get proof of your no claims discount.
The other issue is that you might have to pay a cancellation fee. These fees vary from insurer to insurer and could be dependent upon how long your policy has left to run. Even if you’re entitled to a partial refund, this could be cancelled out by the size of the fee – check the T&Cs again to find out.
But remember that, because insurers keep the best deals for new rather than existing customers, you could probably find a policy that is significantly cheaper than your current one. If the saving was bigger than the cancellation fee, it’d be worth considering cancelling and starting a new policy.
What about ‘gap’ insurance?
If you’re buying a brand new car, it’s well worth considering gap insurance. This pays out to make up any shortfall between the screen price you paid for the car and its current market value, which is the sum the insurer will pay out in the event of a claim.
As soon as you drive off the forecourt, the car’s market value is substantially less than what you paid for it not 10 minutes previously. So if you crashed on the way home (and you were at fault), you’d only get a portion of the cost price from your insurer, even if the car was written-off.
With a new Ford Mondeo TDCi, for example, you’d pay the dealer a touch over £20,000. But if you wrote it off a year later, your insurer would only pay out around £12,000 thanks to the ravages of depreciation – leaving you with an £8,000 gap to fill out of your own pocket to replace the car.
If, however, you’d taken out gap insurance this would make up the shortfall so you'd get a total payout that’s a lot closer to the price you paid for it.
You could arrange this additional cover for three years at a cost of £252 – that’s just £7 per month – and you’d be covered for a shortfall of up to £15,000. You can find out more and arrange gap insurance here.