It’s a dilemma that most people face when taking out home insurance; do you pay for the cover in full upfront, or in 12 instalments over a year? Will paying all in one go mean you get a better deal for the same quality of policy?
Most insurers offer customers a reduced overall charge if they pay for the full term right at the start. For the insurer, it’s more attractive as they’re not essentially ‘loaning’ you the money and getting you to pay them back.
Extra cost of monthly payments
If you choose to pay monthly, it nearly always costs more overall.
In fact, estimates are that it increases premiums by up to 10%. The cover itself isn’t any different, so you’re not benefiting from a better policy; you’re just ending up paying more than if you pay in one lump sum.
Benefits of paying annually
The benefits of paying up front largely come down to the discounts insurers offer when compared with spreading the payments monthly.
But there should also be less paperwork to complete and the chances of payments being missed are less.
You might, for example, change bank accounts during the payment term and if your direct debits aren’t correctly carried over, you could miss a month. Such a scenario could have serious ramifications for your credit score and is worth avoiding at all costs.
What if you can’t afford to pay in one lump sum?
However, for many people it can be difficult to find the cash to cover a full 12 months’ payments.
If that’s the case, it’s perhaps even more important to compare like-for-like policies as some insurers will charge more for payments spread over a 12 month period than others for the same or similar cover, even if they charge less than their competitors if you pay in full.
Zero per cent option
One possible solution is by paying for your cover up front with a credit card that charges you zero per cent on your spending, as many now do as part of introductory offers.
By doing so you can benefit from the discount most insurers offer to those that pay in full, and then pay yourself the total sum back by paying down the credit card balance over 12 months.
If you went down this route you should be very careful that the card’s interest free term is for at least 12 months, and that you’re sure you’ll pay off the complete balance before it ends.
We have a real passion for making sure people get the cover that’s right for them. We’re driven by a desire to help you find not only the best value insurance, but the right insurance for your individual needs. For more information speak to one of our experts on 0203 014 9300 or email email@example.com