Back to Basics: Everything you need to know about car insurance

You can’t drive on UK roads without insurance. And anyone who owns a car is legally obliged to insure it – unless it is officially registered as off the road with the DVLA.

Man in a car
So car insurance is obligatory. But lots of motorists pay way over the odds for their cover, especially if they stay with the same insurer year after year.

Here we explain everything you need to know about car insurance, including the various types of policy available, and suggest how you can protect yourself and your car as cheaply as possible.

What is car insurance?

Car insurance covers you (and any other ‘named’ drivers on the policy) when travelling in your vehicle. As a minimum, it insures you against the ‘third party’ costs associated with damage, injury or death to others in an accident that is judged to be your fault.

Other policies cover your own costs, such as repairs to your vehicle or reimbursement if it is written-off or stolen.

Your policy might even afford you some protection when driving other people’s cars.

It is a legal requirement for motorists of all ages. To prevent the problem of some drivers flouting the rules and driving without cover, all cars not registered as off the road via a Statutory Off Road Notice (SORN) must now be insured at all times.

What happens if I don’t have car insurance?

Anyone who breaks the Continuous Insurance Enforcement (CIE) rules can receive a £100 fixed penalty notice, have their car clamped or even face court prosecution with fines of up to £1,000.

So even if you have a vehicle that you only use from time to time, you need to get it insured or declare it as off the road with a SORN notification from the DVLA to avoid breaking the law and facing a penalty.

If you have an accident while driving without insurance, you will also have to cover all the related costs yourself – including repairs to any cars or property damaged in the crash and any medical bills. This could run into tens of thousands of pounds.

What sort of car insurance do I need?

There are three levels of car insurance available in the UK today: third party; third party, fire and theft; and comprehensive.

Third party cover, which only pays out for damage to other people and their property caused by you, is usually – but not always – the cheapest. However, you will have to pay to repair or replace to your vehicle if it is involved in an accident, stolen or damaged by vandals or thieves.

You may therefore prefer to take out third party, fire and theft cover, which also protects you against fire damage and theft, or fully comprehensive insurance that also covers damage to your vehicle caused by a crash.

What factors affect the cost of car insurance?

Car insurance premiums have fallen sharply this year.
But you will not necessarily benefit from this trend if you simply auto-renew with your existing insurer.

To ensure you get the best possible deal, it is crucial to shop around and compare the policies available from a wide range of insurance companies.

Other factors that affect how much you pay include, of course, the car you drive. Every passenger car built to UK specifications is assigned to one of 50 insurance groups, based on factors such as engine size, and using research conducted by the Motor Insurance Repair Research Centre – commonly known as Thatcham.

The higher the group, the higher the insurance premiums you will have to pay, which is why you should check which group a particular model is in at http://www.thatcham.org/ before deciding to buy it.

Your age and experience behind the wheel, claims history (including whether you have a no-claims discount) and occupation will also have an impact on the premiums you pay – as will your postcode and where you park your car at night.

What is the policy excess?

The excess is the amount you agree to pay towards any claim – and, within reason, the higher the excess, the lower the premium. So, if you put in a claim for £500 and the excess is £200, the insurer will only pay out £300.

If you are considering making a small claim, it may therefore be worth considering paying for any repairs yourself instead – especially if you stand to lose a no-claims discount.

The excess has two parts – the mandatory excess (which is set by the insurer, usually at £50 or £100) and the voluntary excess (which you choose yourself). It’s important not to volunteer to pay an unrealistically high excess that you couldn’t afford to pay if you subsequently made a claim – it means you’ll basically be insuring yourself up to that level.

What’s more, insurers only reduce premiums to reflect a higher excess up to a certain point. If you set the voluntary element beyond a certain amount – say, £500 or more – it will have no impact on the premium.

What is a no claims discount?

Insurers reward safe drivers with no claims discounts that can be worth up to 75% or even more after five years. These discounts can generally be transferred from one insurance company to another.

However, as the name suggests, you will lose this discount if you make a claim on your policy. That said, you can ‘insure’ your no claims discount so that you can make one or perhaps two claims in any given 12-month period.

What is a ‘named’ driver?

A ‘named’ driver is another individual who is named on your policy as sometimes driving your car. Younger drivers often find that they can trim the cost of car insurance by adding an older or more experienced driver such as a parent to their policy.

But beware: you must never have a more experienced driver 'front' your policy for you as the main driver to get cheaper cover.

This practice is illegal and could invalidate your cover and result in a conviction for driving without insurance.

Are there any other types of car insurance?

Over recent years, insurers have launched a number of innovative new policies. These include black box (or ‘telematics’)insurance, which is particularly popular with younger drivers and involves having a small black box fitted to your vehicle to monitor how you drive. Some policies use an app downloaded to your mobile.

Insurers say careful drivers can typically save up to a third with a telematics policy.

Multi-car households can also save up to a third by covering all the vehicles registered at their address on one, single policy.

Other options include temporary or short term car insurance that will cover you to drive a vehicle for between one and 28 days.

What happens when I make a claim?

It's important to contact your insurer as quickly as possible when you need to make a claim, and to have your policy details and the details of anyone else involved to hand.

Once you receive a claim form, you should also complete and send it back as soon as possible, enclosing any supporting evidence. 

Other tips include keeping copies of the claim form and other relevant paperwork, and a record of any phone calls or emails, as well as waiting for a list of approved garages from the insurer before undertaking any repairs. Otherwise, you might find yourself footing the bill because the garage you use is not on the list.

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct

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