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Higher auto insurance deductibles

During these tough economic times, more people are looking at ways in which they can cut back on their monthly expenditure. One important, but increasingly costly, expense is car insurance premiums. However, is increasing your voluntary excess, in order to potentially reduce your monthly premiums, worth the risk?

According to the AA, in the 12 months to January 2012, car insurance premiums rose on average by 15.3%. Therefore, it`s no surprise that consumers are trying every trick to reduce this cost, while still maintaining a comprehensive insurance policy.

With most policies, the compulsory excess amount is determined according to your age, car and insurance claims history. However, there is also a voluntary amount that you can increase or decrease depending on your circumstances. However, before you jump straight in to change this amount, you should make sure you understand the risks involved.

Is it worth it?

When you accept a higher voluntary excess amount, many insurance companies will reward you with a lower monthly premium, which can appear appealing. However, you should check carefully exactly how much it is reducing the overall costs. You might find that the savings are quite small and not always worth it, especially if you end up making a claim. In this instance, you could be paying more than you would have done with a lower amount.

Can you afford it?

As more consumers risk increasing their excess contributions, this has led to a rise in drivers who can`t actually afford to pay what they`ve agreed in the event of a claim. Research from AXA has found that in 2011 the number of policy holders who couldn`t meet their excess commitment rose by 61% from the previous year. They`re basically praying everyday that they don`t have an accident, which is a risky strategy.

Even if you`re an extremely careful driver, who hasn`t made a claim in years, there is still the potential of being involved in an accident that wasn`t your fault. Not all insurance policies waive or refund the excess in these circumstances, so you need to make sure that you will be able to afford both the compulsory and voluntary contributions if something happens. If you can`t cover the costs, it might mean that you put off having your car fixed. This could then lead to the damage becoming worse and costing you more in the long run.

If you`re tempted by the lower premiums, then consider putting a small amount of money away each month in an easy access savings account. This way you`ll still be earning interest on it and will have some money easily available to pay your excess costs if required.

As with all ways of saving money, there are benefits and risks and you need to weigh these up carefully before making any decisions. Research different insurance policies and look at how the premiums are affected by the excess contributions. Check out websites like simplyfinance.co.uk  which has tips on what you should be looking for. Above all, whatever excess you set yourself, make sure you could comfortably afford to pay it in an emergency. If you can`t then it`s not worth the risk.

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