Cutting back on car insurance cover is tempting fate, drivers warned

As the recession continues to hit household budgets, almost 5 million people are considering scaling back on their home, flood and car insurance costs research has revealed.

Figures show that home cover is the most likely to be affected, with 2 million people planning to reduce or cancel their policy, with car insurance the next likely to face the cull. Some companies have reported an increase in the number of drivers opting for a cheaper third-party cover rather than going full comprehensive.

Although cutting back on insurance costs may seem a good way of dealing with financial problems that the recession has brought about, it may be leave many consumers facing huge bills and even fines, just for trying to save a bit of spare cash off their premiums each month.

The research shows that 37 per cent of motorists are considering downgrading their car cover, but this could be a costly move if they are stopped without the right insurance cover and risk facing hefty fines, disqualification from driving and the car being seized and crushed.

With advances in number plate recognition technology, the chance of being caught without the proper insurance or any cover at all has increased dramatically over recent years.

It can be a common misconception to think that only taking out third-party car insurance will automatically help to cut costs, as these premiums are often comparable with comprehensive cover. The reason is that the premium a driver pays is based on the risk posed by that driver, as opposed to the cost of covering the car.

Insurance expert Peter Gerrard explains, “If you only opt for third-party cover then not only will you have to pay for damage to your own car, but your premiums will go up as well after the accident. Increasing your excess is also a popular way of cutting your premiums. The savings are significant and can mean a difference of 10 per cent or more in the cost. However, this is far better for those who only use their cars once or two days a week, and not at peak times. It is a false economy for someone who races up and down the motorway every day. And if your car is only worth a small amount in the first place, it makes no sense to have an excess threshold that high.”