A new study by Premium Credit, a leading UK finance company, has revealed that one in four customers now use credit to finance their insurance policies, increasing the amount of customer borrowing.
The rise in the trend, experts say, has been caused by the rising cost of premiums and the increased squeeze of household finances following the pandemic.
Equally, the increase in premiums has led to some customers canceling their cover. As a result of not being able to afford their insurance, some customers have had to stop policies. The study showed that around 4% of those who use credit to fund insurance have canceled buildings insurance while 3% have canceled contents cover.
Premium Credit’s Insurance Index shows that 69% of adults use some form of credit to pay for one or more types of cover and that credit cards are the most used form of borrowing ahead of finance from insurers
Fewer insurance policy cancellations by customers
However, this is an improvement on research conducted by Premium Credit in March 2021, which found 5% had canceled or amended buildings insurance and 7% had canceled or amended contents insurance.
Data revealed that over the past year, nearly seven out of 10 people used some form of credit to pay for one or more insurance policies, and one in four borrowed more than they had in the previous 12 months for this purpose.
The information suggests that some customers may rely on credit more to help fund their insurance in the future because around a third (29%) of adults questioned believe their household income will fall over the next 12 months, and 41% of those who use credit to pay for cover say premiums have risen since the Coronavirus crisis started. Nearly half (49%) say premiums have stayed the same or fallen.
An estimated three out of four (73%) of customers who have seen premiums rise said they have shopped around more to find cheaper cover, but 13% say they changed items or got rid of them to help reduce the cost of cover. Some 12% of people increased their claims excess, and the same percentage reduced their level of cover.
Credit cards paying for insurance cover
Premium Credit’s Insurance Index, which monitors insurance buying and how it is financed, found credit cards are the most popular form of borrowing with 36% using them compared with 23% who rely on finance offered by their insurer and/or premium finance. Nearly one in 10 (9%) use personal loans and 6% have borrowed from friends or family.
Premium Credit is advising customers to consider premium finance which, for a small charge, enables them to pay monthly for cover instead of in a lump sum. Spreading payments in such a way can help ease cash flow challenges and make paying for vital insurance simpler.
Percentage of adults using credit to pay for various insurance covers
- Car insurance - 44%
- Home insurance - 44%
- Life insurance - 31%
- Pet insurance - 24%
- Health insurance - 17%
- Travel insurance - 14%
- Critical illness cover - 12%
- Specialist insurance (boat, horse etc) - 5%
Speaking about the latest finding, Adam Morghem, Premium Credit’s Strategy, Marketing and Communications Director said, “Premium finance is specifically designed for insurance buyers to help make important insurance policies affordable. Looking to spread the cost of an annual policy into more manageable monthly payments works for many consumers and businesses.”
Owen Thomas, Chief Sales Officer at Premium Credit added: “Premium finance has become a very cost-competitive means for consumers to buy insurance and better manage their finances through spreading payments. At a time when household finances are under pressure it can be a good alternative to other forms of credit.”