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Can you switch car insurer if you’ve taken a payment holiday?

Paloma Kubiak
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Paloma Kubiak

September is the peak month for car insurance renewals but with payment holidays offered to motorists, many will be wondering if they can switch provider for a better deal.

In May, the financial regulator rushed through temporary measures to help insurance customers who may be struggling financially as a result of the coronavirus crisis.

Insurers were told to allow requests from customers for a payment deferral at any point up to 18 August 2020, though this was later extended until 31 October. But where a payment holiday isn’t the best option, firms should offer reduced repayments.

Customers could also be refused a payment holiday if they were coming up to the end of their cover period and granting such a holiday would keep them tied in past the ordinary renewal date.

With the option to take advantage of a payment holiday or reduced payments amid the pandemic, the question now is whether motorists can still switch insurer.

Comparison site GoCompare said people have the freedom to shop around whenever they want. However, they will need to make sure to take account of any administration or cancellation fees, as well as money owed to the insurer before switching to see if it’s cost effective to do so.

It added that individual insurers will have different approaches when it comes to paying back an outstanding amount, such as whether the sum may need to be paid back before a switch.

However, it adds that customers would usually need to pay for any time they’ve been covered and any money owed to the insurer from a payment holiday, whether via a lump sum or spread out over the remaining payment window.

The Association of British Insurers (ABI) also said the exact process of paying back money owed will be down to individual insurers and their agreement with customers.

‘A payment holiday doesn’t affect your right to switch insurers’

Lee Griffin, CEO and founder of GoCompare, said: “The coronavirus pandemic has had a widespread impact on the economy and for those who have found themselves in extreme financial difficulty, payment holidays can provide a lifeline by allowing them to stop or reduce their monthly payments for up to three months.

“During these challenging times, we’ve seen insurers help their customers who are struggling financially through many means, including waiving admin and cancellation fees and offering cheaper premiums based on changes in circumstances.

“So, for some people, remaining with their current provider may be good for them, but without shopping around to see what other insurers are willing to offer them it’s almost impossible to know.

“Now more than ever people need to make sure they’re getting the right policy for them at the best possible price. Taking a payment holiday does not affect your right to switch insurers, and with potential savings of hundreds of pounds for those who shop around, we would urge people to consider all of the options available to them carefully.”

Will you be asked if you’ve taken a payment holiday?

For customers who are looking to compare prices for their car cover, GoCompare said it only ever asks people how they usually pay for their insurance – whether annually or monthly and so it does not ask whether they have taken a payment holiday.

It added that a payment holiday shouldn’t affect a customer’s credit file or future premiums as long as they keep to the payment arrangements.

The ABI said it is not aware of insurers requesting this information when people undertake a quote.

It added: “Motor insurance remains a fiercely competitive market, with shopping around helping many motorists to get good deals. The current average motor insurance premium stands at £460, its lowest for four years, as motorists have been benefiting from reduced road accident frequency during lockdown.

“But motorists should not be seduced solely on price – it is important to compare the cover on offer, so that the policy you opt for is the best one for your needs.”