Three year fixed price insurance - what's the deal?

Annie Shaw / 24 May 2019

Sick of switching your home and motor insurance to get the best value? Long-term fixed-price deals could well be the answer

We’ve become used to fixing the rates we pay for everything, from home loans and car- purchase deals to phone contracts and domestic energy. Fixed-rate contracts define the terms of a deal at the outset, allowing us to budget easily.

A new insurance deal

Surprisingly, Britons haven’t been able to nail down the price of their home and motor insurance for more than short periods. But that’s about to change as insurers recognise they need to give their customers transparency around pricing as well as looking for new ways to attract and keep customers.

Intense competition in the insurance market can work in consumers’ favour, keeping prices low and encouraging companies to create enticing offers. It can also work against them, for two main reasons. The first is that for an insurer to offer the keenest prices it may cut down policy features, for example with exclusions (situations where the policyholder isn’t covered) and high excesses (the amount the policyholder has to pay before the insurance pays out).

The second danger is these ultra-low prices create a ‘water bed effect’ in the market. Just as standing on the corner of a water bed causes the water pressure to rise at the opposite end, cutting costs aggressively for the first year of a policy to attract new customers may mean that those who don’t switch to a new deal each year end up paying more than they need to. This ‘loyalty penalty’ means customers who stick with an insurance policy that suits them may be forced to switch when they don’t want to.

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The benefits of three-year fixed insurance

So, how can fixed-price insurance help? Quite simply it reduces the pressure to keep on switching. When you find a policy that suits you, the price and terms are then fixed for three years. You can just ‘set it and forget it’ or shop around annually.

These deals are common in some countries – three-year cover is compulsory for some types of motor insurance in India, while customers in Ireland can buy fixed-price home, motor and health insurance. In the UK, the idea is still very new, and Saga is among the pioneers. In fact, it will be the first UK insurer to offer a three-year contract for motor insurance.

What are the benefits of a three-year deal, apart from knowing the price won’t go up? It tackles the important issue of automatic renewal – your policy rolls over into a new one if you don’t respond to a reminder to cancel it. It can be useful because if, for instance, you’re on holiday when your insurance renews, it simply continues, avoiding you driving home from the airport in an uninsured vehicle. Auto-renewals have been criticised because, if a customer fails to cancel a policy, they can end up paying for it anyway or be insured twice if they’ve chosen another insurer. Longer-term fixed-rate policies mean that you don’t need to think about arranging your insurance cover so frequently.

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Can you cancel a three-year fixed insurance deal?

What if you want to cancel early? With any fixed-price deal, it’s important to check the options for exiting part-way through the term. For example, with Saga, policyholders aren’t tied in for the full term. Customers have the choice to shop around annually, but with the assurance that, should they stay with Saga, the price will remain the same.

With Saga’s three-year fixed- price insurance policy, exit penalties don’t apply because the contract is annual. Customers can still check each year to make sure they have the right product at the right price, but with the assurance that the price won’t change.

Annie Shaw

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The opinions expressed are those of the author and are not held by Saga unless specifically stated.

The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.