The dangers of auto-renewing your car insurance

Auto-renewing your car insurance seems like an obvious and easy option. Why waste time looking for a new deal, when you’re happy with your current policy and provider? Sadly life (and insurance) aren’t that simple. Even following new rules that ban insurers charging existing customers more than new ones, your loyalty could still cost you a pretty penny. Here’s why.

What is car insurance auto-renewal?

Auto-renewal is where, if you don’t take any action, your existing car insurance provider rolls your policy over when your previous term (usually 12 months) comes to an end. If your insurer auto-renews your cover then, unless you do something about it, you’ll be covered under the same terms as before for another year. Auto-renewal has pros and cons, which we’ll delve into later.

Does car insurance always automatically renew?

It depends on the specific insurer and your agreement with it. When you first take out an insurance policy, some insurers will give you an up-front choice of whether or not you want it to auto-renew. Others will set your policy to auto-renew by default and you’ll have to contact them if you want to turn it off.

How do I know if my insurance provider auto-renews?

Insurers have to tell you they will automatically renew your deal. This is likely to be either by getting you to tick a box when you sign up, or by explicitly telling you it will do this at the end of the year. If you can’t remember what it said when you signed up, check your terms and conditions or contact the insurer directly to ask. Assuming your cover will auto-renew (or assuming it won’t) both come with a risk if you’re wrong.

Is auto-renewal legal?

Yes. Provided they tell you (and that you are given the ability to stop the auto-renewal if you wish), then it is legal for car insurers to set up your policy to auto-renew. However, they must contact you in advance of your renewal date to let you know when the renewal will take place and how much your renewed policy will cost, so that you have a chance to cancel if you wish.

How can I stop my car insurance auto-renewing?

Your options for stopping your car insurance from auto-renewing depend on your provider, as policies vary. In some cases, you’ll have a choice when you take out a policy of whether to auto-renew or not. In other cases, it’ll be the default and you’ll have to opt out subsequently. Some insurers may let you do this in your online account, if you have one. With others you’ll have to call to request it.

Bear in mind that if you cancel auto-renewal, the onus is on you to remember to buy a new policy to start when your existing policy expires. Otherwise you risk driving uninsured, which is illegal. Even if you aren’t set to auto-renew, your existing insurer should send you a letter or email when your current policy is a few weeks from expiring, letting you know what it can offer you. But it’s safest to put a reminder in your diary too.

Can I cancel my car insurance after it’s auto-renewed?

Yes. Every time a car insurance policy starts or renews, you have a 14-day cooling-off period to change your mind. Provided you haven’t claimed during this period, you’ll get back the cost of your policy minus any days it was active for. Some insurers may also charge a cancellation admin fee. This is likely to be lower than if you cancel after the 14-day cooling off period though. And some insurers don’t charge cancellation fees at all during this period.

Should I turn off my car insurance auto-renewal?

That’s a call only you can make. There are pros and cons to turning off car insurance auto-renewal. Some depend on how on-the-ball you think you’ll be when your existing cover runs out.

Risk of auto-renewing

There are two main risks of auto-renewing, particularly if you didn’t know it was going to happen.

1. You could end up paying more for your car insurance than you might spend on an equivalent policy with another provider. Even if you’ve made no claims or other changes, there may be factors outside of your control that mean your current insurer puts your premiums up. For example, a spate of expensive claims by some customers could see prices going up across the board. Or it could be as simple as you turning a year older. Your insurer may no longer be as competitive for your age group as some other insurers.
2. You risk doubling up on car insurance. With some insurers you need to call to cancel your cover, rather than it expiring automatically. If you don’t realise this clause is in your contract, you may buy a second insurance policy from a different provider. You could then get a shock when you check your bank statement and see you’re paying for two policies.

Risk of turning off auto-renewal

The key risk of turning off auto-renewal is that of driving uninsured. Driving without insurance is illegal and can come with some hefty penalties. So, turning off auto-renewal and forgetting to buy a new policy when your existing one expires could cost you dear. Auto-renewal has downsides, but it does provide a safety net that you will always be covered if you’re absent-minded. Or if life gets in the way of boring insurance admin.

The cost of loyalty – are loyal customers still paying more?

The Association of British Insurers (ABI) publishes a regular tracker looking at how the cost of insurance is changing. In its report from the second quarter of 2022, it revealed that costs for both new policies and renewals had increased a little on the previous quarter.

Quarter on quarter, average renewal premiums had risen just 0.5% (to £371), while average premiums for new policies rose by 3% (to £500). There will be some nuances behind this, of course. The new policy figures will include those taking out insurance for the very first time, with no track record and no claims history. And such customers tend to be more expensive to insurer in general. By definition, those renewing their car insurance will almost certainly have at least a year’s worth of driving history, so are more of a known entity.

But, while it’s early days, these findings paint a promising early picture of the effect of the ban on loyalty premium hikes.

Finder survey: What level of price hike would stop you auto-renewing your car insurance?

When is the best time to renew my car insurance?

You might assume that the precise timing of when you get quotes to renew your car insurance doesn’t really matter. But many sources suggest that shopping around (and buying) 2-4 weeks before your renewal date will get you cheaper premiums than if you leave it until the last minute. The exact reasons for this are as mysterious as most workings of the car insurance industry. Perhaps insurers know that they have to be more competitive for those that still have the leisure to look elsewhere rather than those that are running out of time.

Either way, pop a note in your diary to get searching a few weeks in advance of your renewal date. Or, if you forget to do this, your reminder letter from your existing insurance should hit your doorstep or email inbox around this time. You can typically set the start date for your insurance for up to a month later than you buy it, so you don’t need to worry about doubling up.

How can I keep costs down when I renew my car insurance?

• Don’t blindly auto-renew. Just because a policy was the cheapest option for you last year – or even the last few years – doesn’t mean it will always be.
• Try haggling with your existing provider. If you’ve found a cheaper price for equivalent cover, but you’re otherwise happy with your existing provider, ask it if it can match the quote, or maybe throw in a few optional extras to sweeten the deal. It may not work, but you have nothing to lose but a few minutes of your time.
• Consider a telematics policy. Fitting your car with a black box which measures your speed, distance travelled, and what time of day or night you drive can cut your costs.
• Experiment with your excess. Your excessis the amount you’ll have to pay should you make a claim. By taking on a higher excess your premium will be lower. However, make sure you can afford to pay it should anything happen.
• Pay annually. Paying a one-off annual fee is typically cheaper than paying monthly. This is because you might be charged interest on the instalments.
• Reduce your mileage. If you limit your mileage you could pay less on your premium. Take a train on a really long distance trip perhaps? Or walk to the shops instead?
• Drive carefully to boost your no-claims discount. Avoid making any claims and you should be rewarded with a discount on your premiums. Just bear in mind that a big no-claims bonus won’t mean much if the baseline premium is overly high, so you may still get a cheaper deal elsewhere.

Pros and cons of auto-renewal

Bottom line

Allowing your car insurance to auto-renew is an easy option. Plus, it avoids the risk of you missing your renewal date and driving without insurance. But, for most people, shopping around each time their existing policy expires is likely to get them a better deal. Your insurer has to let you know when you take out the policy if it will auto-renew. Some will give you the choice. If you unintentionally allow your policy to auto-renew, you have a 14-day cooling off period to change your mind and cancel. There may be an admin fee, but it could be worth paying if you find equivalent cover at a much lower price.

Frequently asked questions

• Will my insurer warn me about my car insurance auto-renewing?

  Yes. Insurers are obliged by law to contact you a few weeks before your policy auto-renews. They should tell you last year’s premium, their quote for auto-renewing, and advise you to check your cover and shop around if necessary. Bear in mind that post sometimes goes AWOL and emails sometimes end up in the junk mail folder, though. So it’s a good idea to also set a reminder in your diary, just in case.

• Why do car insurance prices rise even if I haven't claimed?

  There are dozens of factors that impact your insurance quote. These include your age, the area you live in, driving experience, occupation, your claims history, your credit score. So a life change such as moving house might suddenly force your premium up or down. If your new area is rife with car crime then the insurer may hit you with higher fees.

  There are external influences too. Your provider may have had a jump in claims over the last year, which it might have to offset by charging other customers more. Or changes to regulation, or even the cost of car parts or labour for repairs, can also affect costs – and therefore premiums – for insurers across the board.

• Do I have to renew my car insurance every year?

  Well, you legally need at least third-party car insurance to stay on the roads. But you don’t have to renew with the same policy. You can switch providers or plans. When you’re coming near the end of your term of cover your provider will let you know. So take the opportunity to shop around and see if you can get a better deal elsewhere. Then organise it so your new policy will kick in when your old car insurance plan ends.