Covid-19, financial difficulty and paying for your insurance

Insurers are expected to support you if you’re struggling to pay for your insurance because of coronavirus. Find out more about your options below.

Updated 21 May 2020  | 5 min read

Guidance from the FCA

The Financial Conduct Authority has issued guidelines for insurers that say they must help you to cut the cost of premiums to make it more affordable wherever possible if you’re struggling.

They must: 

  • Cut the cost of your insurance to make your premiums more affordable where possible 
  • Offer to defer payments for between one and three months 
  • Waive cancellation fees 

But insurers might not offer this support automatically. It’s up to you to get in touch with your insurer and ask for help. It should, however, notice if you haven’t been keeping up with payments and get in touch to see if there’s anything it can do to help. 

How you pay for your insurance affects the type of support you can get:

  • If you pay annually - you might be able to get a partial refund on your premiums if your cover or risk level has changed. 
  • If you pay monthly - you’ve got the option of deferring payments for one to three months, reducing your payments, or extending your policy term. 

How insurers can help you

Reassess risk to reduce premiums

A lot of this will come down to how your lifestyle has changed because of coronavirus. A good example would be if you typically commuted to work but aren’t anymore. Insurers could then lower the mileage you initially stated at the start of your policy to reduce your premiums.

The same could apply if you used to travel between sites and had business use on your car or van. These changes can be made temporarily, or for the rest of the policy term. It depends on what you and the insurer expect to happen in a few months’ time.

Any changes will be pro-rated, which means they won’t be backdated to the start of your policy and will only apply from when your situation changed. That’ll impact the amount of any refund or reduction in the price of your premiums for the remainder of the policy term.

You shouldn’t be charged any administration fees for making these changes.

For some types of insurance, this’ll be a lot more complicated. Reassessing your risk to reduce your life insurance premiums won’t be as simple as changing your job title or mileage for your car. For that reason, you’re more likely to be offered deferred payments instead.

Changing cover levels, within reason

Another option is to reduce your level of cover to make your premiums more affordable. For example, removing ’cover away from home’ for your laptop from your home insurance. You, and your insurer, need to make sure that any changes you make still leave you with the cover you need.

Just like reassessing your risk, this doesn’t have to be a permanent change. You could remove an aspect of cover temporarily and then add it back on later.

You shouldn’t be charged any administration fees for making these changes either.

Payment deferrals for between one and three months

If making changes to your cover isn’t suitable, your insurer my allow you to defer payments on your insurance for between one and three months.

Your insurer isn’t obliged to allow you to defer payments and you’ll have to pay it back before the end of your policy, whether that’s in a lump sum or spread out over your remaining payments.

For something like income protection, where the term of your policy could be years, it’ll be much more affordable to spread the cost than for something like car insurance. Where you’ll only have a handful of months to pay back the deferred amount. Because of that, payment deferrals are a last resort.

If your insurer thinks you’ll struggle to make repayments, they won’t offer you deferred payments. For example, if you’re close to the end of your policy leaving you with little time to repay your insurer might not think it’s the best solution for you. If that’s the case, your insurer could offer you a couple of other options: reducing your payments or extending your policy term.

Accepting reduced payments, waiving missed payment fees or changing the policy term

Your insurer might be able to extend your insurance policy by a few months, which will give you a bit more time to pay back any deferred payments you owe.

Or, they could accept reduced payments or write-off payments entirely.

The FCA have said that the above options are the minimum they expect insurers to do. It doesn’t mean they can’t do more to help you.

If you’re coming to the end of your policy, it makes things more complicated. Particularly if you were planning on switching provider.

Your options if you’re coming close to renewal

Your insurer might not offer you deferred payments so close to renewal. And in some ways, that works in your favour. Your renewal offer from your current insurer isn’t going to be the most competitive offer – you’re more likely to get a better deal if you shop around.

The FCA hasn’t said how long you need to be with an insurer to get a payment deferral. But, entering into a credit agreement knowing you can’t afford it could make getting financial help difficult.

Here are a few options you still have:

  1. Talk to your current insurer and reduce your premiums now. You might be in a better financial position to switch closer to renewal

  2. Ask your insurer if they could extend your policy by a few months to give you a bit of breathing space and so you can access a payment deferral. That way, you won’t get stuck with a high renewal price on the same policy for another year

  3. If you’ve only got a month left on your insurance, compare and see if you can get a better price. If you get a better price, take it back to your insurer. That way, you can haggle and make sure you’re getting a better deal for your loyalty. You’ll also have a lot more flexibility on financial support options if you stay with your insurer

  4. Before you take out a new policy and cancel with your current insurer, call the potential new insurer and ask what financial support they can give you. Some insurers have only asked for one payment to be made to qualify for the options above

  5. If you can afford to shop around, make sure you do. If your circumstances have changed – for example, you’re doing less miles, you can alter your annual mileage to reduce your premiums. Just make sure you don’t underinsure yourself and make any future claims difficult

The most important thing to do right now is get in touch with your insurer and explore your options. That way you can make the best decision to protect yourself financially in the short-term, without causing yourself problems in the future
Matt Oliver - Car insurance expert
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