Prices rocketed by a third over 2010. The 33.2% calendar year rise recorded by the AA was the highest since its Insurance Premium Index started 17 years ago.
The increases pushed the average fully comprehensive policy up by a third to £843.
Home insurance costs also climbed by up to 10.2%.
However, you can help limit the damage by following the MoneySavingExpert.com insurance cost-cutting system (details below).
Car insurance costs up
Prices went up by a £51, or 6.4%, in the last quarter of 2010 alone.
According to the AA, the increase was less than the previous quarter but added to the cost of driving ahead of fuel duty and VAT increases in January as well as the 1% increase in Insurance Premium Tax.
Young drivers were hit hardest with fully comprehensive premiums for 17 to 22-year-olds rising by more than 58% over the year to £2,251.
Third party, fire and theft policies, which are most commonly bought by young drivers, also rose by more than a quarter in the last three months with the average price for the year reaching £1,390, a rise of more than 70%.
Home insurance up
Home insurance also rose sharply due to a growing numbers of weather-related claims.
The cost of contents cover, whilst falling slightly over the last quarter by 0.8%, rose by an average of 8.3% over the year.
The average premium for buildings insurance also increased by 7.7% over the quarter and 10.2% over the year.
Combined buildings and contents policies also increased by 3% in the last quarter and 4.9% over the year.
Slash insurance costs
You can help limit the damage by following our car and home insurance system. Sometimes, the cashback you get is more than the cost of the cover, which can put you in profit.
Here's how it works:
Step 1: Combine the power of comparison sites. These zip your details to a host of insurers' and brokers' websites in seconds, scraping their data to report back the cheapest. No site lists every provider so the key is combining searches to give yourself the widest range in the least time to find the cheapest policy of those that contain your required cover (see the Cheap Car Insurance and Home Insurance guides for full details).
Also note Aviva and Direct Line do not appear on comparison sites so, if you've time, search their sites to add to your comparison.
Step 2: Grab cashback. Once you know the cheapest provider, check whether you can grab any money back via a cashback website. These pay a cut of their commission if you click through to insurers' or brokers' sites via them (see the Top Cashback Sites guide).
Step 3: Remember next year. Just because you got a super-cheap quote this year, doesn't mean you will next year. So diarise a note six weeks before renewal so you don't up paying your insurer's expensive renewal price.
Comparison sites not for everyone
If you have a medical condition, have a high claims history, if you are sharing a home with friends, or if you have any other complex issues, comparison sites may not offer the cheapest policies.
If you can't find a decent quote, use a broker. You can normally find one via the British Insurance Brokers' Association (Biba) website (link below).
Further reading/Key links
Cut costs: Car Insurance, Home Insurance
Find a broker: Biba