What is car insurance?
Car Insurance is a legal requirement. As a responsible driver you will no doubt be aware that having insurance for your vehicle is mandatory, but, due to the terminology used by insurers, you may not have a complete understanding as to what exactly it is and why you need it. From the kind of car you own, your driving history to your budget, there are a number of factors you have to take into consideration before you purchase your policy. With this car insurance guide we’ll walk you through all you need to know to help you gain a clearer understanding of what car insurance is, and how you can get the best policy for you.
Why do I need Car Insurance?
All motorists are required, by law, to insure their cars. Put simply, this provides financial protection in the event of an incident which causes damage or injury to another person, vehicle, property or animal. This is known as third party cover.
This does not include repair costs for damage to your own vehicle as a result of the incident, theft of the vehicle and damage to the vehicle caused by other reasons. To ensure your own vehicle is covered, you can choose a comprehensive level of cover when you purchase. Cars that are registered as off-road with a Statutory Off Road Notice (SORN) are not legally required to be insured.
How much does car insurance cost?
The first step in buying a car insurance policy is filling in the application form. The insurers will ask you several questions. These will help determine the price you’ll pay, i.e. your insurance premium.
These questions will include:
- Vehicle type and age – an expensive new high-powered sports car will cost you more to cover compared to a ten year old 1.0 litre hatchback.
- How the vehicle is used – needing to drive regularly during rush hour or having higher than average mileage can increase your premium. Similarly if your vehicle will be used for business purposes, aside from commuting to and from a single place of work, this may cause an increase in premium.
- Age – being a young and inexperienced driver can result in higher costs.
- Driving history – penalties on your licence or convictions, crashes and claims can raise your premium.
- Voluntary excess – offering to pay a higher excess amount on top of the compulsory amount set by the insurer, which will apply should you make a claim, can lower your premium.
- Where you live – living in a high crime area can negatively impact your insurance cost.
- Additional drivers – adding young or inexperienced drivers to your policy is likely to increase your premium.
Make sure you answer the questions as accurately and as honestly as possible. Failure to do so can invalidate your car insurance and result in your insurer refusing to pay out if you make a claim and even withdrawing your policy.
Types of car insurance policy
The three main types of car insurance policy are:
Third-party only (or TPO)
- This policy is the minimum legally required level of coverage for motorists in the UK. It covers liability for injury to others, including whilst towing a caravan or trailer and damage to third-party property.
Third-party, fire and theft (or TPF&T)
- This policy includes all third-party insurance coverage, but also includes theft of your vehicle, and damage to your vehicle during theft and fire.
Comprehensive policy
- The most wide-ranging coverage that includes everything covered by third-party, fire and theft along with medical expenses, personal effects, accidental damage, windscreen coverage and loss of or damage to your vehicle.
Find out more about car insurance policy types.
Types of car insurance cover
There are also several types of cover and choosing the right one for you will depend on what you need the car insurance for, your age and your personal circumstances. These include:
Find out more about car insurance policy types.
What is a no claims bonus, and how does it work?
A no claims bonus, also known as a no claims discount, is a reward from car insurance companies for drivers who don’t make any claims during a year. It works by reducing your insurance cost for each year you don’t make a claim. The longer you go without claiming, the bigger the discount could be when you renew.
A no claims bonus is typically offered on all car insurance policy types, including Comprehensive, Third Party Fire and Theft, and Third Party Only, but it’s generally not available on short-term policies.
If you're at fault in a claim, you might lose your no-claims discount (NCD) unless it's protected. For non-fault claims, you could still keep your NCD, even if it's not protected. Some insurers let you pay extra to protect it, so you won't lose it after making a claim. Your NCD also goes with you if you change cars or insurers.
What is car insurance excess, and how does it work?
Car insurance excess is the amount of money you agree to pay towards the cost of a claim before your insurance covers the rest. For example, if your excess is £200 and you make a claim for £1,000, you'll pay the first £200, and your insurer will cover the remaining £800.
There are usually two types of excess:
Compulsory Excess – set by the insurer and can't be changed.
Voluntary Excess – an additional amount you can choose to pay, which may lower your premium.
You pay the total excess (compulsory & voluntary) when you make a claim.
Keep your car insurance details up to date
Once you’ve received your paperwork it’s important to keep your insurer up to date with any changes in your circumstances to ensure your policy is valid. Likewise, in the event of an incident or if your vehicle is stolen, you must contact your insurer immediately, even if you are not making a claim.
What is car insurance FAQs
Car insurance protects you financially if you're involved in an accident. Depending on your policy, it can also cover damage to your car or if it's stolen. Additionally, some types of insurance will cover injuries to others if you're at fault for the accident.
You can check when your car insurance expires and when it’s due for renewal by looking at the renewal date on your policy documents or insurance certificate. You may be able to find your policy documents in your online insurance account as well. If not, you can call your insurance provider and ask.
You can cancel your car insurance at any time, but you may not get your money back and you may be charged a cancellation fee. In some cases, you may be able to cancel online, in others you may need to speak on the phone.
Here’s how to cancel your car insurance:
- Check your policy – look at your policy to see if there are any cancellation fees or refunds.
- Contact your insurer – check online to see if you’re able to cancel that way, this will likely be quickest method. You may even be able to use web chat. If not, call or email your insurance company and ask to cancel your car insurance.
- Provide any documents – send any documents or information they ask for.
- Get confirmation – make sure you get a confirmation that your policy is cancelled.
- Ask about refunds – if you're owed money for unused cover, check with your insurer.
If your car is written off, your insurance company will pay you the car’s market value before the accident, minus any deductibles. Your insurance policy for that car will be cancelled, and you may receive a refund for any unused cover. You'll need to get a new policy for a replacement vehicle.