Another car insurance tax hike: top tips to cut the cost
As of today, Insurance Premium Tax (IPT) has risen from 10% to 12% – the third rise since November 2015 and double the 6% rate at that time.
IPT, a tax levied by the government and which is passed on to consumers, applies to most general insurance policies including car, home, pet, private medical, individual cash plans and commercial insurance taken out by businesses.
All in all, the 12% IPT rate could now be adding an extra £283 a year to a typical household’s annual insurance bill, helping the government rake in £5.8bn a year.
The latest rise comes at the worst possible time for motorists as average premiums are already rising owing to changes in how personal injury compensation is calculated, along with rising repair bills and a resurgence in whiplash-style claims, according to the Association of British Insurers (ABI).
Data by comparison site comparethemarket.com revealed the average car insurance policy is expected to reach £800 in June, compared with £701 in June 2016 and £600 in the previous year.
As IPT is paid as a percentage of your car insurance premium, motorists who have the highest insurance costs, such as young drivers or those with on-going medical conditions, may have to pay a higher rate.
Top tips to help you save on car insurance
Here are some ways you may be able to slash your car insurance premium if it’s due for renewal soon:
1) Buy in advance
Some insurers may view people who buy insurance in advance as more risk averse and therefore less likely to take chances behind the wheel or miss payments. Data from comparethemarket.com reveals the cheapest quotes tend to be about three weeks before renewal. Also if a policy is bought a day before renewal, customers don’t really have the time to shop around for the best deal so are more likely to accept the price given.
2) Be accurate with your mileage
Overestimating your mileage can have an impact on your premium, according to GoCompare.com. On average, the difference between driving 10,000 miles and 9,000 miles a year can be as much as £36, dependent on your circumstances. YourMoney.com also revealed last year how tweaking your annual mileage by just one mile could knock off £100 from your car insurance premium.
3) Think about your job and title
Your occupation is one of the key considerations insurers use to calculate the cost of your premium. When an insurer asks for your occupation, you will usually have to select one of the pre-defined titles they have on their system. This means for some people, there may be more than one job title that accurately describes what they do. GoCompare.com said if you’re retired or a homemaker, you should select those options and not just say you’re unemployed or out of work. Typically unemployed drivers face higher insurance costs than homemakers or retirees. The difference between being housewife/husband and unemployed can be more than £100.
4) Add a named driver
Fronting, which is when a more experienced driver (usually a parent) claims to be the main driver of a younger motorist’s vehicle to get cheaper insurance premiums is illegal and a form of insurance fraud. But by adding another person like a spouse or parent to your policy as a named driver could reduce insurance premiums significantly. Gocompare.com found that by adding a 50-year–old driver who has no claims or convictions to a 17-year-old’s policy, the total premium dropped by £300.
5) Counterlogical, but go fully comp
A common misconception is that third party only is cheaper than comprehensive cover, but in many cases this isn’t true – fully comprehensive cover could even be cheaper than a third party only policy. This is because, some insurers may view those looking for comprehensive cover as caring more about their vehicle and therefore more likely to be careful on the roads. It could save you about £200.
6) Pay annually
In most cases, paying for your insurance in one annual instalment is often cheaper than opting for monthly payments. This is because insurers typically charge interest to spread your costs monthly.
Using a credit card with a 0% interest-free period could allow you to manage your own payments, without paying interest on the balance. Just make sure to pay the balance off before the end of the 0% period otherwise, you will be charged interest on the remainder of the balance on the card.
7) Consider telematics
These black boxes collect data on individual driving behaviour and provide a personalised quote rather than one based on algorithms such as age, location and mileage. Telematics provider Octo Telematics said the products can provide discounts of up to 30%, helping to offset some of the soaring costs of driving. While young drivers will benefit from a bigger discount, Octo said drivers of all ages are moving to telematics.
8) Shop around
Most people know that in most cases, the best deals go to new customers. Regularly shopping around is the best way to save big money on the cost of your renewal.