You may have noticed when paying for car insurance one month at a time that the first payment is significantly larger than the rest. This is known as the car insurance deposit, and it is important to understand its significance as part of your monthly payments.
If you do not pay for the entire insurance coverage at once and instead pay month to month, you are essentially taking out a loan from the insurance company. As part of paying this loan on a monthly basis, a deposit becomes necessary to protect the insurance company in case future payments are not made.
When monthly payments are viewed as paying back a loan, then the deposit does make more sense as a concept. Plus, there are low and no down payment insurance policies geared toward those who have good credit which again refers to the lending nature of monthly car insurance. Learn how to qualify for no deposit policy.
It’s possible to get a refund if you cancel your policy within 14 days after you sign the contract. If you make a claim within the 14 day period, the insurance company will usually deduct the sum paid out from the refund itself along with the first premium. However, if you wait until after the 14 day period, it is still possible to get at least a partial refund of your deposit which is usually pro-rated for the time that passes. So, a car insurance deposit refund is possible even several months into the policy itself.
The typical cost for most policyholders is 20% of the total value of the insurance. For example, if the entire policy for the year is £1000, then the deposit will be £200 as that is 20% of the whole policy. Again, this amount may vary depending on many factors, but 20% is the standard that most people will face when making monthly payments for their auto insurance in the UK.
As a reminder, it is possible to get a policy with a lower or even no deposit payment required depending on the insurance company you choose.
Your first month’s payment will include the entire deposit. So again, if your policy in total costs £1000, then your first month’s payment will be £300. The remaining payments will be at £100 each month.
It is possible to avoid paying a deposit if you decide to pay for the entire insurance policy at once. Because it is all paid for from the beginning, no deposit is required and the coverage will last for the duration of the policy. Also, if you have good credit or a long history of paying your insurance bills on time, you may qualify for no deposit policy.
In the end, your auto insurance deposit is a part of your overall insurance coverage when you pay on a monthly basis. Be sure to check out all the options to see if you qualify for a low or no deposit auto insurance.