FOOL'S EYE VIEW
Don't Get Ripped Off With Insurance

By Jane Mack (TMFJane)
August 2, 2002

If you discovered you could save as much as 25% on your car or house insurance, you'd be pretty pleased with yourself, wouldn't you? Well, I realised the other day that I hadn't actually taken advantage of this magnificent saving and I'm kicking myself for not noticing it before.

I'm being charged a colossal amount of interest just for paying my household insurance premiums on a monthly basis. Now, considering I should know about these things, I was a bit surprised to discover it.

I had to go and check this after receiving a press release from the Abbey National who flagged up the point that many insurance companies charge customers extra to pay for their car and home and contents premiums monthly. In fact, they estimate that more than £600m a year is being paid by customers for the privilege.

(The Abbey National is, naturally, thrilled to reveal that it doesn't charge extra when customers want to pay monthly).

Now, paying in instalments is obviously far more convenient than having to find several hundred pounds in one fell swoop each year but one could ask why these companies work on the basis that house and car insurance needs to be paid a whole year in advance anyway. Oh, I know – it means they make more money out of us!

The Abbey National's research shows that insurance providers are charging policyholders more than £460m in extra charges for car insurance and around £170m for home insurance.

The interest rates vary from the AA who charge a whopping 24.9% with Churchill coming a close second at 23.7%, to esure at 21%, Direct Line at 19% to More Than at 13.7%.

The AA's Becky Hadley points out:

"Our APR is fairly typical of in-house lending where the loan can be as small as £100. The charge levied covers the cost of administration, customer service, bad debts and the actual cost of funding the loan".

She adds that interest-free' options are not, of course, free, and that providers who bundle the cost of the monthly payment option into the premium unfairly penalise those who choose to pay in advance. (A little dig at the Abbey National, methinks).

I suppose one could say that those who do pay up front should get some benefit for doing so but charging what amounts to a quarter as much again for those who can't afford to still seems a bit excessive.

The trick, of course, is to try and put aside a little extra each month – in a high interest savings account, naturally – so that when the annual bill arrives, you've got the money to pay for it. If that's not a possibility then at least pay for the lot on a low-rate credit card so you're not paying such a huge amount of interest.

After all, if you can save as much as 25% on your insurance premiums, it's surely worth it.

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