Why unemployment bumps up car insurance costs

UK unemployment has reached its highest level since 1996 – and car insurance companies could be cashing in on this trend by charging the jobless more for their cover.

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A recent investigation by the BBC revealed that jobless motorists are paying, on average, 30% more for their car insurance than those in employment.

It also found that premiums for the unemployed can be as much as 63% higher depending on factors such as postcode, and even the employment history of the applicant.

Why ‘no job’ means ‘higher risk’

The reason that insurance companies are raising policy prices for the out-of-work is because – unfair as it seems – they perceive unemployed drivers as a greater risk than those who are in work.

MoneySupermarket’s motor insurance expert, Peter Harrison, said: “This is partly because the unemployed are likely to be using their cars more during the day and may even be travelling on unfamiliar roads when attending interviews.  And in the eyes of an insurer, a downturn in financial circumstances, such as losing your job, even, means you are more likely to make a claim, which drives up premiums further.”

Missed or late payments on debts, such as loans and credit cards, when you hit the kind of financial hardship that results from unemployment is also likely to have a negative impact on your credit rating. And, as insurers look at an applicant’s credit history when determining the cost of their policy, wrenching as it seems, this can also drive up the cost of premiums.

Clearly when you are out-of-work and your car is instrumental in trying to source employment, the last thing you need is to be faced with sky-high motor insurance premiums. That’s why it’s even more imperative that you shop around for the best deal.

Research from MoneySupermarket shows drivers save a staggering average of £400 a year just by searching for the cheapest insurer rather than ‘auto renewing’ with their existing provider.

Keeping the cost of your cover down

The good news is, there are number of ways than you can keep down the cost of your car insurance policy. None will require you to trade your current vehicle in for one with a one-litre engine – although that may help also!

Get a new quote

Motorists are wasting in excess of £2.4billion every year by accepting the renewal quote provided by their insurer.

Insurers often reserve their more competitive prices for new customers and so it is worth applying to your current insurer as a ‘new customer’ or use MoneySupermarket to compare the best prices online.

Add another driver

Adding a more experienced driver to your policy can help to bring down the cost of your car insurance.

However, you must ensure that you do not name the more experienced driver as the main driver of the vehicle if this is not the case. This is known as ‘fronting’ and, not only will it invalidate your policy, it is also illegal.

Improve security

Making sure that the security on your car is up to scratch can lower the cost of your car insurance. But you must confirm with your insurers that the devices that you are fitting are approved and that installing them will bring down the price of your policy.

Don’t pay in instalments

Although this may not be possible due to your financial circumstances, you can save money if you pay for your car insurance for the year upfront instead of splitting it into monthly instalments. Read Clare Walsh's article  'The best way to pay for car insurance.'

Limit your mileage

Again, this may be impractical, but if you can cut down the number of miles you cover each year then you may be able to cut down the cost of your car insurance.

This can be as simple as cutting out non-essential car journeys or car sharing wherever possible. This will also bring the added benefit of saving money on fuel and reducing wear and tear on your vehicle.

Keeping your insurer informed

With enough on your plate already when you lose your job, it can be tempting to put off telling your motor insurer of any negative changes in your circumstance.

However, failing to disclose this information can make matters even worse as it could invalidate your policy, meaning you are not covered in the event of an accident.

Not only will the cost have to come out of your pocket, but you are at risk of being charged by the police for driving without adequate insurance cover.

If you do have a change in circumstances, such as losing your job – or even if you decide yourself to change jobs – you should inform your insurer straight away to ensure you are fully covered.

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct

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