Low-income households who cannot afford to pay their annual car insurance bill in one outgoing are being hit with a £300 penalty for paying in monthly instalments, analysis has shown.
Monthly bill payers paid £757.60 each year, compared to £455.49 for annual payers, a gap of £302, according to data from November, analysed by consumer champions Which?.
This is a greater gap than three years earlier, when customers paying monthly were charged £673 on average for a year’s cover, while those paying upfront paid £456.
Experts are now warning of a growing divide in the costs faced by those who pay for their insurance monthly and those who pay annually, adding the most severe price increases could be falling on the drivers least able to afford them.
Separate data from price comparison website GoCompare suggests younger customers often opt for monthly payments – and often pay larger premiums because they are deemed to be higher risk.
The Financial Conduct Authority (FCA) has also said low-income households are more likely to pay monthly and face higher premiums.
Which? is calling on the financial watchdog to monitor whether insurance providers are meeting their obligation to provide fair value under the new Consumer Duty, which takes effect on 31 July.
Jenny Ross, Which?‘s Money Editor, said: “At a time when household budgets are under huge strain, it’s concerning that customers who pay monthly for their insurance could be paying far more than those who pay their annual premium upfront.”
How you can save on car insurance costs
While paying annually is generally cheaper than paying each month for car insurance, there are other ways you can look to cut your bill.
The first is to avoid automatically renewing your deal as doing so can mean you pay extra.
Which? said that half of its members that haggled in the first six months of 2022 made average savings of £56 for car insurance and £54 for home insurance.
It added there are also likely savings available by switching providers. Drivers who didn’t haggle, but had changed car insurers were paying £43 less, on average, than those who remained with their original provider.
Other tips can include using comparison sites to compare prices, and considering telematics, or black box, car insurance policies. These monitor your driving using tracking devices installed or plugged into your vehicle, or in some cases your smartphone. You are offered discounts based on how well you drive.
The timing of renewing is also important. Generally, leaving it until the last minute means insurers are likely to charge more than if you purchased the cover a few weeks in advance of the cover starting, it warns.
Based in New York, Stephen Freeman is a Senior Editor at Trending Insurance News. Previously he has worked for Forbes and The Huffington Post. Steven is a graduate of Risk Management at the University of New York.