Car Insurance £400 opt out fee!?

Joe-C_4

I just spoke to my friend who has car insurance with a company called 'Budget'..

He is 19 and his insurance is about £1600 a year...

He wants to get rid of his car and obviously his insurance... but the company says there is a £400 opt out fee...

Is this correct? Seems a little unfair..

MarkyMarkD

That's not surprising.

Insurance is an annual contract. They aren't obliged to refund anything at all if you choose to cancel.

Most companies will refund, but they generally charge a penalty - sometimes just a nominal £25 or so, but often by using some arbitrary scale of short term cover rates which can by quite penal.

mm66

One way out is transfer of insurance to the new buyer. if thenew buyer is agreeable then you can add them as additional and then in a week ask for your name to be deleted. The trouble is the new buyer might not want this hassle and at the price your friend has it is no bargain.

rhartley

One way out is transfer of insurance to the new buyer.  if thenew buyer is agreeable then you can add them as additional and then in a week ask for your name to be deleted.  The trouble is the new buyer might not want this hassle and at the price your friend has it is no bargain.

I don't think this idea will work. The new owner will be the one with the financial (and insurable) interest in the car so the existing policy will not provide the right protection, even if the new owner is named on it as an additional driver.

rhartley

I just spoke to my friend who has car insurance with a company called 'Budget'..

He is 19 and his insurance is about £1600 a year...

He wants to get rid of his car and obviously his insurance... but the company says there is a £400 opt out fee...

Is this correct? Seems a little unfair..

The only way to be sure is to check the policy wording - it will set out the cancellation options. As is mentioned above, insurers often apply what are called "short period charges" when you cancel- especially in the first year of a policy.

The reason is that the insurer (and any intermediary involved) has practically the same costs whether or not the policy lasts the full year. It's the setting up of the new policy that costs the most and those costs have to be paid for somehow.

If the £400 levy is out of step with what is written in the contract (the policy booklet) then Budget cannot legally withhold this amount.

Assuming the high penalty proves to be legally correct (if not morally) then the best advice would be for your friend to keep the existing policy going, but switch it to a car which is much cheaper to insure. The result will be a refund of premium due to the lower rating.

In addition, by keeping the policy going for the full term, your friend should accrue a valuable no claims discount.

A 20 year old with a year's NCD will be a much more attractive proposition for insurers than one with zero NCD and a record of cancelling policies mid-term.

However, there are sometimes more cunning ways to get insurers to refund in full. For example, some will refund on a "pro rata" basis if the policy is cancelled at their request rather than by the policyholder. So your friend might perhaps request a change to the cover that the insurer will inevitably decline. At that point they might offer to cancel the policy on the basis that they can no longer offer the cover being requested.