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Should You Pay Home Insurance Monthly or Annually?
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Home insurance costs £375 a year or around £36.5 per month on average—but should you pay the premium upfront once a year or should you pay monthly?
Generally speaking, if you have the cash then paying annually is typically cheaper in the long run—by paying annually, you can avoid interest charges associated with monthly payments. Borrowing money from the insurance company (or a finance company working with the insurance provider) usually comes at a cost—in fact, paying upfront is one of the simplest ways to save money on home insurance
We'll discuss what APR you should expect and the typical size of interest charges, should you decide upon paying insurance via monthly payments instead of annually. We'll also discuss the pros and cons of an alternative solution to spread out your insurance payments—putting your annual home insurance payment on a credit card.
What's the Cost to Pay Home Insurance Monthly Instead of Annually?
By opting to pay monthly, most people would pay around £63 extra a year due to interest payments—this reflects a 29.7% APR on a policy costing £375 per year (which we found to be the average cost of Buildings & Contents Insurance policies.
How Much is the APR on Home Insurance?
Out of the dozen or so insurers we surveyed, we found that two offered a monthly payment option for no extra charge—that is, 0% APR. In that case, for example, a policy costing £360 a year would cost £30 a month with 0% APR (£360/12 months = £30 per month).
Most insurers, however, impose a charge for paying monthly instead of annually (upfront). We found the range of non-zero APRs to be 18.7% to 57.5%, with an average of 29.7%. We have not surveyed the entire market—only Sainsbury's Bank, M&S Bank, LV=, One Call, Swinton Classic, Swiftcover, AXA Home, Privilege, Hastings and Churchill—so please use these numbers for general guidance and informational purposes only.
The True Cost of Paying Monthly Depends Upon APR and Premium
How much extra will it cost to pay monthly? By paying monthly, you're likely to incur interest charges. In order to understand the real cost to you of these interest charges, consider both the APR and the annual premium. In the table below, you can see an analysis of some typical values, to get a rough idea of the additional cost (i.e., interest charges) from monthly payments vs. annual payments.
Potential Interest Charges due to Paying Monthly for Home Insurance
| Buildings & Contents Annual Premium | 16.70% (Approx Min APR) | 29.80% (Approx Max APR) | 23.20% (Average APR) |
|---|---|---|---|
| £130 | £12.06 | £21.93 | £16.91 |
| £265 | £24.58 | £44.70 | £34.47 |
| £485 | £44.98 | £81.80 | £63.09 |
Paying Home Insurance with a Credit Card
If you don't have the money to pay your annual premium all at once, using a credit card to make the upfront payment can be more economical than asking the insurer to break your premium into monthly payments. Usually, both the insurer and the credit card will charge you interest—it's a matter of deciding which will cost less.
Broadly speaking, you can compare the APR on your existing credit cards to the APR from your insurer. If you have a credit card with a lower APR than the APR your insurer will charge, you may be better off using your credit card to pay the insurer in one upfront, annual payment.
The average credit card APR is 18.9% for those with good credit. If your card has a similar APR, most people will save money on monthly payments if done so via your credit card vs. most insurers.
Poor Credit?
Those with poor credit may be paying around 36% on their credit cards. If this is the case for you, you will probably incur lower interest charges by arranging monthly payments through your insurer instead of using your credit card.
Using 0% Credit Card Deals to Pay Insurance
0% credit card intro rates may save you a bundle on interest payments, but there are drawbacks to this route. First, those considering opening a brand new credit card for the sole purpose of paying insurance should carefully consider if that is the best/only option, because each new credit card approval is contingent upon a hard credit search, which leaves a mark on your credit record.
Second, if you chose to pay insurance on a 0% credit card, remember to always, always make monthly payments on time. Miss a payment and you'll lose your 0% intro rate. Depending on the card your interest rate could increase well above that which the insurer would have charged.
Conclusion
All in all, pay annually if you can afford the upfront payment—in most cases you'll save money. If you can't afford an upfront payment, remember to look out for the APR charged by an insurer on monthly payments.
Use this information to know if you're being charged a high APR (e.g., Churchill quoted us a higher-than-average APR equivalent to 57.5%). You may even find a 0% APR offer (at the time of writing, Sainsbury's Bank and M&S Bank offered 0% APR on monthly payments) however there is much more to an insurance quote than just the APR. The market is constantly changing and we did not survey all UK insurers, but please keep the APR in mind when comparing insurance quotes, as it will affect your payments.
The insurers surveyed for the purposes of this article were: Sainsbury's Bank, M&S Bank, LV=, One Call, Swinton Classic, Swiftcover, AXA Home, Privilege, Hastings and Churchill.
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Quickly compare over 3 dozen UK insurance providers. Only one form to fill out.