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Car insurance set-up and cancellation fees soar

Paloma Kubiak
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Paloma Kubiak

Drivers are warned to check the additional fees associated with their car insurance policy, not just the headline premium price, as these extra charges have soared in recent years.

Insurers are charging drivers a greater number of extra fees, and on top of this, they’re becoming more expensive.

Set-up fees have risen the most, according to business information and ratings firm Defaqto. It revealed the average set-up fee in January stands at £40.02, a 25% increase from the £31.92 recorded in 2018.

Further, the number of insurance products including set-up fees has also rocketed, from one in five in 2018 to nearly half of products now.

A quarter of products charge between £40 and £59.99 in set up fees, while one in 10 charge £60 or more. Just 3% charge less than £20.

Renewal fees – to continue a policy for another year – have also increased. Defaqto noted that in 2018, less than a fifth (17%) of products charged renewal fees. But now, 45% charge this fee.

The majority charge between £40 and £59.99, while 10% charge £60 or more. Just 2% charge less than £20. Five years ago, the majority of fees stood at £20 to £39.99.

Overall, renewal fee charges have increased by 25% from £31.65 to £39.69 on average in January 2023.

Meanwhile, cancellation fees are also on the up. Nearly three in 10 products charge £60 or more to cancel a policy after the cooling-off period, where drivers are given 14-days to change their mind if it doesn’t meet their needs.

Defaqto explained that providers can charge a cancellation fee during this period, and they tend to cost between £20 and £39.99. However, half don’t charge this fee.

But, there are also charges to watch out for if you need to cancel a policy after the cooling-off period, and these tend to be higher than within the statutory 14-day period.

Almost a third of products charge £60 or more, while half charge between £40 and £59.99.

‘Check the terms and conditions before buying car insurance’

Mike Powell, motor insurance expert at Defaqto, said most people tend to look at the headline premium figure when buying car insurance and do not always see the additional fees.

“These fees tend to happen when there is a change in circumstances, such as a new vehicle, moving to a new home or cancelling cover if you no longer have a vehicle. Most people don’t plan on changing their circumstances when they take out their insurance cover, but we know from the last few years, that life changes and you just have to adapt,” he said.

Powell added: “Fees have increased a lot recently and they are much more expensive now than they were five years ago. It is also worrying to see that they are being included in more products and are likely to affect more people.

“It is always worth checking the terms and conditions before buying any insurance, to make sure there aren’t any unexpected fees. However, if you are in financial difficulty and are struggling to pay your insurance premium and therefore need to cancel your cover, it is always worthwhile speaking to your insurance provider to see if they are able to help.”