The true cost of fees when cancelling an insurance policy

Insurance companies specify in the small print that policyholders have to tell them of details that might affect cover… and then charge hefty fees to update the cover.

The charges are in force across almost every kind of personal and business insurance, but the big losers are those who have to have a policy by law. Millions of drivers and businesses must have minimum levels of statutory cover to put a vehicle on the road or take-on employees.

Simple changes to these policies, like updating marital status or a change of address are costing drivers £21 on car insurance and home insurers want £18 a time – according to a survey by consumer group Which?. Some insurers charge a lot more: young driver specialist I-Kube, charges £55, while home insurer Bluefin has a whopping £35 fee!

The Which? survey claims 105 out of 151 car insurers and 60 out of 180 home insurers make a charge for amending a policy.

Which? chief executive Peter Vicary-Smith said: “Whether it’s £30, £55 or an £85 fee, insurance companies are going to have a hard time trying to justify the exorbitant charges they’re billing for routine tasks such as changing an address on a policy or providing duplicate policy documents.

“It’s about time insurance companies start treating their customers fairly and make administrative charges proportionate and transparent.”

The survey also revealed some insurance customers lose significant percentages of their premium refund and face fees of up to £85 for cancelling insurance midway through their policy term.

Many insurers calculate refunds based on a sliding scale of rates.  This means that if you cancel in the third month, you might only get back 50% of the annual premium, 20% after six months, and nothing at all for those who cancel after nine months.

Two thirds of car insurers and one third of home insurers also charge cancellation fees. Debenhams, Igo4 Insurance, Masterquote and MRL Insurance Direct charge £85 cancellation fees. The average cancellation fee for car insurance is £40 and £31 for home.

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