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Types of car insurance explained

Understand the different types of car insurance policies

Sara Newell
Written by  Sara Newell
10 min read
Updated: 25 Mar 2024

There are a number of different types of car insurance. Find out what type of car insurance you need to drive in the UK.

The legal necessity of car insurance

In the UK, the law mandates that every driver must have car insurance to cover the potential costs associated with road accidents, car damage, or theft.

This legal requirement ensures that all parties involved in an accident have some form of financial protection.

But car insurance is not just about ticking a box for legal compliance. It's a crucial layer of financial security on the roads. Whether it's a minor scrape or a major collision, the right insurance policy can save you from bearing the full brunt of unexpected expenses.

three girls in a car

When is insurance required?

Even if you're not actively driving your car, it still requires insurance. The only exception is if you register it as “off road” with a SORN (Statutory Off Road Notification), which frees you from the obligation to insure and tax the vehicle.

This is an important consideration for anyone planning to leave their car unused for an extended period.

Choosing the right insurance

With so many insurance options available, how do you choose the right one? It's a question many drivers grapple with. The answer lies in understanding the different levels of coverage and determining what suits your needs and budget.

Insurance providers offer a range of coverage options, from the basic legal protection to comprehensive policies that cover a wide array of potential issues.

It's essential to find the right balance between adequate coverage and cost-effectiveness to ensure long-term savings and peace of mind.

Specialised policies for different needs

There are specialised policies tailored to different vehicle types and driver profiles. These policies can offer more suitable coverage for your specific situation, potentially saving you money while providing the protection you need.

What are the three main types of car insurance?

Car insurance comes in three main types, each offering varying levels of protection and cost. Understanding these can help you make an informed decision about which is best for you.

Third-party only

Third-party only car insurance is the bare minimum required by law. It covers damages to other people's property and injuries but does not protect you or your vehicle. While it offers the least protection, it can sometimes be the most expensive due to high claim rates.

Third-party, fire, and theft

Third-party, fire, and theft policies build upon the third-party only cover by adding protection for your car in case of theft or fire damage. However, this type of insurance does not cover accidental damage to the policyholder's car if they are at fault in an accident.

Fully comprehensive

Fully comprehensive car insurance is the most inclusive policy, covering you, your car, its contents, and passengers. It often includes extras such as windscreen cover and the use of a courtesy car as standard. Surprisingly, it is often the cheapest option and the most popular in the UK.

Which type of car insurance is cheapest?

Typically, fully comprehensive insurance is the least expensive, though prices are influenced by individual circumstances.

This wasn't always the case, but the trend reversed when insurers noticed an uptick in claims from third-party only policies, particularly among newer drivers, which drove up prices for that level of cover.

What other types of car insurance are there?

For certain motorists, specialised policies may better suit their specific needs:

What are car insurance extras?

Policyholders can add extras to their insurance for specific needs, often at an additional cost:

What is a car insurance compulsory excess?

A car insurance compulsory excess is the fixed amount you're required to pay towards a claim, determined by your insurer. It's generally higher for demographics more likely to file a claim, such as new or young drivers.

Policyholders can also choose a voluntary excess to potentially lower their policy price, but caution is advised to avoid setting it too high, as it could become financially burdensome in the event of a claim.

What exactly do insurers factor into the price of different types of car insurance?

Insurers consider a variety of factors when determining the cost of car insurance:

  • Age: Younger drivers usually face higher premiums

  • Driving history: A record of past claims and convictions can hike up premiums

  • Location: High crime rates in an area can lead to increased premiums

  • Insurance group: Cars in higher insurance groups attract higher premiums

  • Make and model: More powerful or expensive cars are costlier to insure

  • Car value: A higher value can increase the risk of theft and repair costs

  • Annual mileage: More miles on the road can increase the risk of accidents

Understanding these factors is crucial in making informed decisions about the type and level of car insurance suitable for your needs and budget. The cheapest option may not always be the best choice for vehicle protection and peace of mind on the road.

Car insurance is an essential aspect of owning and operating a vehicle in the UK. With the right knowledge and understanding of the various types of policies and factors affecting insurance costs, drivers can make informed decisions that provide both financial protection and peace of mind.

Whether you're a new driver or an experienced motorist, taking the time to assess your insurance needs can lead to significant savings and ensure that you're adequately covered for whatever the road may bring.

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