Not been driving much? Here's how to save money on costly car insurance

If you've not been driving your car much lately, it’s important to shop around for a better car insurance package, says Ruth Jackson-Kirby.

Car insurers continue “to punish loyal customers with price hikes despite a massive drop in the number of road accidents” in lockdown, says Will Kirkman in The Daily Telegraph. Four in ten customers who stuck with the same provider saw their annual bills rise by an average of £49 a year in the last three months of 2020, says comparison site Confused. 

The so-called “loyalty penalty” is expected to be banned from July but until then insurers can raise your premiums when you renew. So, what can you do to cut your bills? Shop around when it is time to renew. “We know from our research that insurers are still putting up renewal prices for some drivers,” Louise O’Shea from Confused told The Telegraph. “Even if the increase is small, please don’t settle for this as there will be an insurer out there willing to offer a better price.”

When you are looking for a new car-insurance policy make sure you think carefully about the details you give for your driving habits. We have all driven a lot less over the last 12 months, and it is unlikely your mileage will hit the same level in 2021 as in 2019. So think about cutting your estimated annual mileage. Just don’t get carried away: underestimate it and you could face problems if you make a claim.

Car insurance charged by the mile 

If you aren’t driving far, consider switching to a policy that charges you per mile. RAC is offering this type of policy to those who estimate their annual mileage at under 6,000 miles a year. You pay an activation fee of £50, then a mileage premium of at least 4p a mile, plus a premium for when your car is parked, starting at £14 a month. This policy won’t track how you drive, only how far. You stick a tag in your windscreen and pair it with an app on your phone. 

“Someone who paid a £50 set-up fee, plus a £16 a month parked premium and was charged 8p a mile for their RAC Pay by Mile insurance policy would end up with a bill of £522 for the year if they covered 3,500 miles,” says David Byers in The Times. That is below the average premium of £603, says Compare the Market. 

But assess your mileage as accurately as you can before you sign up: someone covering 6,000 miles a year on the same payments as above would rack up an annual premium of £722 – well above the average. RAC is only the second insurer to offer pay-as-you-drive coverage; By Miles is the other. You may also be able to ask your insurer for a partial refund if you haven’t gone as far as you estimated when you signed up. Direct Line offers Mileage MoneyBack of 2% of your premium for every 1,000 miles you didn’t drive. Aviva and Sheilas’ Wheels also offer refunds. You have nothing to lose by asking your insurer if they will give you some of your money back.

Recommended

The MoneyWeek portfolio of investment trusts – March 2023 update
Investment trust model portfolio

The MoneyWeek portfolio of investment trusts – March 2023 update

A decade ago we set up the MoneyWeek portfolio of investment trusts. It proved a success, says Andrew Van Sickle.
27 Mar 2023
Energy prices expected to fall in July - should you switch to a fixed energy tariff?
Energy

Energy prices expected to fall in July - should you switch to a fixed energy tariff?

Fixed energy deals are starting to make a comeback, with one major provider already offering it to existing customers - we look at how much they may c…
27 Mar 2023
State pension errors – women with husbands aged over 80 could be underpaid
State pensions

State pension errors – women with husbands aged over 80 could be underpaid

Some married women could be missing out on their full state pension, but the DWP has no plans to contact them directly. We explain how you can check i…
27 Mar 2023
Where will house prices go in 2023?
House prices

Where will house prices go in 2023?

We explore what could happen to house prices in 2023 as the market continues to slow down.
24 Mar 2023

Most Popular

Share tips of the week – 24 March
Investments

Share tips of the week – 24 March

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages
24 Mar 2023
Will energy prices go down in 2023?
Personal finance

Will energy prices go down in 2023?

Ofgem’s price cap is now predicted to fall below £2,000, based on average typical use, from July, for the first time since 2022. We have all the detai…
21 Mar 2023
Where will house prices go in 2023?
House prices

Where will house prices go in 2023?

We explore what could happen to house prices in 2023 as the market continues to slow down.
24 Mar 2023