Paying month-to-month for insurance coverage might price you just about 50% extra
- Insurers in spotlight for level of premium hikes for paying monthly
- This means no one large bill, but paying more for the same cover overall
- This hits poorest hardest, as the group least likely to afford one-off bills
Paying monthly for insurance could cost you nearly 50 per cent more, according to research from consumer group Which?.
Drivers and homeowners who pay for their insurance in monthly instalments are being slapped with staggering interest rates, with some being charged as much as 45 per cent APR.
Which? is urging the Financial Conduct Authority regulator to step in, labelling the practice a ‘tax on being poor’.
Monthly mark-up: Drivers get squeezed when paying for car insurance monthly, as it typically means taking out a form of loan with an insurer, which often comes with higher premiums
The two ways of paying for insurance are monthly and yearly.
Paying monthly means avoiding the financial pain of a single, large bill. This is a particular issue with car insurance, where average yearly premiums are £622.
But paying monthly also means paying more for the same insurance, as most insurers charge extra for the privilege.
Which? research found that while the average APR for car and home insurance is 22.33 per cent and 19.83 per cent, respectively, some providers are charging far higher rates, with one firm, iG04, demanding an eye-watering 45.1 per cent.
For instance, a 40-year-old driver in South London was quoted £996.65 for iGo4’s ‘More’ policy if paid upfront.
But opting to pay monthly would hike the total to £1,158.11—a stark difference that penalises those unable to pay all at once.
| Insurer | Average APR | |
|---|---|---|
| 1. | The Co-operative Insurance | 29.89% |
| 2. | AA Insurance | 26.9% |
| 3. | Hastings Direct | 26.9% |
| 4. | InsurePink | 26.9% |
| 5. | People’s Choice | 26.9% |
| 6. | The Green Insurer | 26.6% |
| 7. | Santander | 26.5% |
| 8. | Churchill, Darwin, Direct Line, Privilege | 23.3%-28.9% |
| 9. | Bank of Scotland | 23.5% |
| 10. | Halifax | 23.5% |
| Source: Which? survey of car insurers | ||
IG04 did not reveal its average APRs to Which?.
Other big names, including Swinton, Hastings Direct, and the AA, charge APRs between 26.9 per cent and 33.8 per cent.
The broker Co-operative Insurance has the highest average APRs for both home and car insurance.
| Column | Insurer | Average APR |
|---|---|---|
| 1 | The Co-operative Insurance | 29.89% |
| 2. | AA Insurance | 26.9% |
| 3. | Hastings Direct | 26.9% |
| 4. | 1st Central | 25% |
| 5. | Tesco | 23.5% |
| 6. | Churchill, Direct Line, Privilege | 20.5%-23.4% |
| 7. | Admiral | c21% |
| 8. | Ageas | 19.9% |
| 9. | RIAS | 19.9% |
| 10. | Aviva | 15% (avg) – 19.9% (max) |
| Source: Which? survey of car insurers | ||
Co-op Insurance leads the pack in high interest charges, demanding 29.89 per cent APR for both car and home policies.
Meanwhile, NFU Mutual and Hiscox are two of the few that do not charge any interest for monthly payments, offering some relief in a market flooded with high fees.
Penalising the poor
Which? says that many customers paying monthly do so out of necessity, not choice, and claims the high interest rates insurers charge are unfair considering the minimal risk involved.
Insurers can cancel policies if payments are missed, yet still charge interest rates comparable to credit cards—where lenders face far greater risk.
Which? director of policy and advocacy Rocio Concha said: ‘Many customers who pay monthly don’t do so out of choice, but financial necessity. That these same customers can end up paying over the odds compared to those who pay annually is blatantly unfair.’
Which? wants the FCA to introduce an action plan that forces insurers to disclose their profit margins between monthly and annual payers, with deadlines to reduce APRs and consequences for those that don’t comply.
A spokesperson from Co-op Insurance said: ‘Having reviewed the rates of credit set by our insurance partner Markerstudy Distribution, we have been able to reduce our rates for both car and home insurance over the past few months, and we are continuing to review this on an ongoing basis.
‘We openly share our rates of credit with both consumers and consumer bodies as part of our commitment to transparency, and we are encouraging all providers within the industry to mirror this approach, as due to the number of providers who choose not to respond to such surveys, an accurate representation of the industry and the policies on offer is unachievable.’
A Markerstudy spokesperson said: ‘Offering choice to our customers is important to us and that includes providing the option to pay monthly for their insurance.
‘Markerstudy Distribution has a variety of brands and within these we have a range of risk profiles that we cater for. As we strive to deliver good customer outcomes, we are working to reduce our APRs across a number of our brands as part of our ongoing review process. IG04 (which caters for telematics and non-standard motor insurance) is scheduled for review in Q4.’
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HOME INSURANCE
Before you start, you will need to know your home’s rebuild cost for buildings insurance, plus details of previous claims. For contents you need to know the overall sum to be insured and any high value or special items.
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CAR INSURANCE
Car insurance costs are sky high with many drivers finding renewal quotes have rocketed from the previous year’s price.
Comparing costs is cheap and easy and can save most people money. We recommend checking one or prefrably two of:
Plus Direct Line and Aviva that do not appear on comparison sites.
TRAVEL INSURANCE
It’s a foolish traveller who departs without insurance, even if it only covers medical emergencies. Compare before you buy with:
MoneySupermarket
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Confused.com
See how much you can save from a few days to an annual policy
Also try Direct Line that does not appear on comparison sites and if you have previous serious medical issues consider a specialist insurer or broker.
