Car Insurance - Paid In Arrears Or In Advance?

citroen999

hi

just tried to cancel my car insurance with Hastings, next payment due on 1st June .... was told i had to pay £45 cancellation fee which i know i need to pay, however there was an added £50 as they are saying my policy is paid in arrears, so its for cover up to the 1st of June... I said i would call back as it did not seem right to me.  I always thought insurance premiums were paid up front and not in arrears to enable cover to start and my monthly premium is only £35 per month so they are charging me £15 more than my monthly payment... surely if the payments are made in arrears the most i would pay is my normal £35 + £45 cancellation fee... ??

Brie

Normally insurance is taken out  for a  full year.  So your policy cost 35 x 12 = 420.  When you cancel they take the fee and then look at what percentage of the year is left and calculate how much of that they can refund.  It's rarely the full amount.  

citroen999

Brie said:

Normally insurance is taken out  for a  full year.  So your policy cost 35 x 12 = 420.  When you cancel they take the fee and then look at what percentage of the year is left and calculate how much of that they can refund.  It's rarely the full amount.  

hi thanks for the reply... there is no refund as i pay monthly for my yearly insurance. My questions are these... Are uk car insurance month payments paid in advance or in arrears and if in arrears why am i paying £15 more than my normal monthly payment?... surely at the worst if i cancelled on the last day of the month i would owe them £35 for the month i have just used but i'm sure uk insurance is paid in advance ie the day they take payment

Brie

But you're not paying for your insurance monthly.  You are making a monthly payment to pay off a credit agreement you signed up to to fund your insurance purchase.  Somewhere in the calculation there is interest that is being paid.

And if you cancel your policy half way through the year they will calculate how much of the credit agreement they can refund - which means how much you don't have to pay.  It's normal to have to pay more than half a year even if you only have insurance for half a year.  

The only reason they might say it was being paid in arrears is that on the first day you owe them £420 (I assume) for a full year's insurance.  Each month you pay a bit off this £420 loan for a full year's insurance.  Wherever you are in the insurance policy term you are still paying off what was owed at the beginning for the full year.  

If you had had an accident then you would get nothing back as you were insured for the full year and claimed within that year.  

Brie

out of curiosity - why did you cancel?  makes sense if you sold the car and aren't getting another.  or if you've bought one that comes with insurance or similar. 

Normally though if you sell a car and buy a new one it's better to amend the policy and then change it at the end of the policy term if you need to.  

anyways - I hope you can sort it out to your satisfaction.

citroen999

Brie said:

But you're not paying for your insurance monthly.  You are making a monthly payment to pay off a credit agreement you signed up to to fund your insurance purchase.  Somewhere in the calculation there is interest that is being paid.

And if you cancel your policy half way through the year they will calculate how much of the credit agreement they can refund - which means how much you don't have to pay.  It's normal to have to pay more than half a year even if you only have insurance for half a year.  

The only reason they might say it was being paid in arrears is that on the first day you owe them £420 (I assume) for a full year's insurance.  Each month you pay a bit off this £420 loan for a full year's insurance.  Wherever you are in the insurance policy term you are still paying off what was owed at the beginning for the full year.  

If you had had an accident then you would get nothing back as you were insured for the full year and claimed within that year.  

hi Brie totally understand now.... so i am loaned the money in effect to pay for a years insurance with monthly repayments, i am not paying my insurance and a month by month cover basis as i pay my direct debits, so when i cancel they calculate how many days cover i have used and add the fees.... 

citroen999

Brie said:

out of curiosity - why did you cancel?  makes sense if you sold the car and aren't getting another.  or if you've bought one that comes with insurance or similar. 

Normally though if you sell a car and buy a new one it's better to amend the policy and then change it at the end of the policy term if you need to.  

anyways - I hope you can sort it out to your satisfaction.

i'm cancelling because i found a quote for £205 and if i put that on my 0% credit card and set up a direct debit to pay it back over 12 mths it works out at £17 per month and i also save the 28.9% APR thats normally applied to insurance monthly payments... should have done it this way years ago lol...

Brie

sounds like good value over all then - nice bit of MSE-ing!!  well done!

fyi - I think you'll need to pay more than £17 a month initially as you'll be paying a decreasing balance.  But set up a minimum DD and then you can add a bit more later as the month payment decreases more.

Brie

No ignore that last bit - if possible set up the DD for the set amount over 12 months - that'll do it nicely!!