How to beat the insurance pay monthly swindle and save £50+

Paying for your insurance on a monthly basis, rather than all in one go, can cost you far more. But is there a way around it?

A leaking pipe in the ceiling
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Insurance is just one of the many household expenses that we simply cannot avoid.

With the cost of living crisis in full swing, many of us will be hunting for ways to save a few quid, for example by ditching unused subscriptions or cutting out takeaways.

However, with some forms of insurance, like car insurance or home insurance, there’s no real option but to have some cover in place.

While you can potentially save money by shopping around for a new provider each year, one often overlooked factor which will influence the cost of your cover is how you pay for it.

Here we explain how insurers cash in when we opt to spread our payments, and the savvy way you can still enjoy monthly payments without paying any extra.

Insurance: why does paying monthly cost more?

Some of the insurance policies that we take out, like car and home insurance, only offer cover for a period of 12 months. The idea is that at the end of that term, you can then shop around for a new policy or renew your cover with your existing insurer.

You will generally be offered two options when paying for your insurance policy ‒ you can pay for the cover all in one go, or you can spread the cost over 12 monthly instalments.

Paying for your home insurance or car insurance in a single payment can be a real challenge to your finances. These lump sums can run into many hundreds of pounds, which is not an easy cost to meet at the best of times, let alone in the midst of a cost of living crisis when household finances are under such pressure.

That’s why it can be tempting for the monthly option, though there is a sting in the tail here. Doing so will cost you more since you will be charged interest. Essentially you are taking out a loan for the cost of your insurance policy, and your monthly payments are going towards clearing that loan, as well as the interest charged on top.

A recent study from Compare The Market demonstrates the higher costs that come from opting to pay for insurance in stages. It found that the average premium for a car insurance policy in December 2022 came to £623, yet the average cost for spreading that over 12 monthly payments came to £688, meaning drivers have to cough up an additional £65.

Importantly, that extra cost has increased ‒ a year ago opting to spread the payments over a year would have meant paying an additional £53.

How to beat the insurance swindle

Clearly, it’s better for your finances overall if you can afford to pay for those insurance policies all in one go. After all, nobody wants to pay more than they have to, no matter what it is that they are buying.

However, given the economic situation at the moment ‒ and for that matter the challenges of the last few years ‒ then it’s inevitable that there are plenty of households that simply don’t have that sort of money to hand. 

Thankfully, there is a way that they can pay the insurance policy off in stages, without actually spending any extra, and that’s by making use of a 0% credit card.

The idea is that you pay for your insurance policy all in one go, using a credit card which has an interest-free period on purchases, say 12 months or more. These cards allow you to clear the balance in stages, without incurring any interest on the outstanding debt. As a result, you can pay off your policy in monthly increments, without having to pay any interest in the process.

An alternative option is a balance transfer credit card. Again these offer interest-free periods, but on sums transferred onto the credit card. So you would pay for your insurance policy using your current credit card, then transfer that balance onto the balance transfer credit card, allowing you to pay it off in stages without paying interest.

This method won’t be quite as budget-friendly however, as you will have to pay a transfer fee, which is calculated as a percentage of the sum being moved. That means that the more costly your insurance policy is, the higher that transfer fee will be.

There are some important points to bear in mind about going down the 0% credit card route. 

Firstly, it’s important to work out the sort of 0% period you’re going to need in order to clear that balance. The longest 0% periods ‒ which are currently 24 months for purchases and 30 months for balance transfers ‒ will only be available to those with the best credit records.

It’s also useful to calculate how much you will need to pay each month in order to clear the balance before any 0% period comes to an end. That way you can ensure that you only pay off the balance, rather than any interest on the cost of your insurance policy.

It is then important to be disciplined. If you only want the credit card in order to spread the cost of your insurance policy costs, then it’s important to resist the temptation to put further spending onto the card. Otherwise, you might find it more difficult to clear the balance in time and leave you having to pay interest after all.

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John Fitzsimons
Contributing editor

John Fitzsimons has been writing about finance since 2007, and is a former editor of Mortgage Solutions and loveMONEY. Since going freelance in 2016 he has written for publications including The Sunday Times, The Mirror, The Sun, The Daily Mail and Forbes, and is committed to helping readers make more informed decisions about their money.