Car insurance – what you need to know

Car insurance gives you financial protection in the event of an accident. And some types also cover claims arising from injuries to other people.

If you own a roadworthy car, you legally need at least a basic level of cover, called third party insurance, even if you don’t drive it.

The only exception is if you officially register your car as off the road, with a Statutory Off Road Notification (SORN).

Penalties for driving without insurance range from a fine and at least six points on your licence, to being disqualified from driving. You might also have your car taken off you.

There are three levels of car insurance cover:

• Fully comprehensive
• Third party
• Third party, fire and theft.

This is the highest level of insurance you can have. It covers you, your car and any others involved in an accident.

It includes all the cover of a third party fire and theft policy, but also protects you as a driver and might pay out for damage to your car.

It might also include compensation for medical treatment, legal expenses and accidental damage.

You can claim for:

• repairs after an accident
• accidental damage
• vandalism – for example, if someone deliberately scratches your car.

It might mean you can legally drive other people’s cars if you have their permission.

But this usually gives you no more than third party cover. This means you have no cover if you damage the car you’re driving. Check your policy details carefully on this – they’re all different.

It’s important to note that even though it offers the most cover, fully comprehensive isn’t necessarily the most expensive.

This is the minimum you can legally have.

It covers you for the costs of injury or damage you cause to other people or their property. But it doesn’t give you any protection if your own car is damaged or stolen.

Just because it’s the least amount of cover you can have, doesn’t mean it’s the cheapest.

So it might be suitable mainly for people who struggle to get affordable comprehensive insurance.

This might be when:

• you don’t have a no-claims bonus
• you live in an area that’s considered high-risk for crime and other risks
• your car is worth less than, say, £1,000, and you can afford to buy another car if you have an accident.

As with third party insurance, this covers other people but it doesn’t protect you if your own car is damaged.

Where it differs is that it covers repairs or replacement if your car is stolen or damaged by fire.

Again, it’s not necessarily cheaper than fully comprehensive cover – always compare prices.

This is the discount that insurers offer when you don’t claim on your policy. The discount increases with each year that you don’t make a claim.

It can be generous too – the discount typically ranges from 30% after one year to 65% or more after five years.

But if you have an accident and you claim for it, you generally lose two years’ worth of no claims bonus and your premiums go up.

If you have more than one accident in a year, you might lose all your no-claims bonus.

Even if you don’t make a claim, it’s important to tell your insurer about any accidents you’ve been involved in. Fail to do this, and any future claims might be rejected.

You can protect your no-claims bonus by paying for an add-on called ‘no-claims discount protection’. This means you can make claims without it affecting your bonus.

You’re usually allowed to make one claim in one year, or two claims in three years, without losing your no-claims bonus.

This is a fixed amount that you have to pay if you make a claim. The amount will vary, depending on the type of claim.

The compulsory level of excess is decided by the insurer. But you can also increase the voluntary excess to reduce the cost of your premium.

Making it as hard as possible for someone to steal your car reduces the risk and, in the process, is likely to reduce the insurance cost too. You can make your car secure by:

• checking with your insurer what security devices it offers discounts for
• fitting an approved alarm or immobiliser
• parking in a garage or driveway if possible
• using Thatcham-approved security devices.

Every car is allocated to a particular insurance grouping. This is based on factors such as cost, how long it takes to repair, performance and safety and security features. The lower the group it’s in, the lower the premiums.

The lower your annual mileage, the lower your premium might be.

But this isn’t always the case. So don’t underestimate your mileage, as this might invalidate your insurance when making a claim or cause you to miss out on a better deal.

Some insurers will give you a discount if you have taken a Pass Plus or advanced driving course.

If you’re a careful driver, you might benefit from getting a policy that uses telematics – ‘black box’ technology – to assess the quality of your driving.

Be aware that any insurance claims or points on your licence will increase your premium.

Adding a second, low-risk driver can reduce the premium – even if they don’t use the vehicle much. While adding a newly qualified young driver will increase the premium.

But don’t break the law and invalidate any claims by pretending the second driver is the main driver.

Insurers will sometimes charge interest if you pay by monthly instalments. If you can afford to pay upfront, you’ll save a significant amount over the year.

Check what cover you have under other financial products. For example, some current account packages include car breakdown cover.

Sometimes your insurer or broker might try to sell you add-ons, such as legal expenses cover. You might be able to get these products more cheaply elsewhere, or you might not need them at all.

If breakdown cover is included in your car insurance, check the price and the level of cover. You might find better cover for the same price or less elsewhere.

You earn a no-claims bonus for each year you drive without making a claim on your insurance.

Make sure you can carry this over when changing insurers.

If you haven’t claimed for five years or more, it might be worth paying an extra premium to protect your no-claims bonus.

By adding a voluntary excess to your compulsory excess, you can lower your premium.

Be aware that you’ll get less back if you make a claim – after both voluntary and compulsory excesses have been deducted. So you need to be able to afford it.

Take some time to research the market and compare quotes – and you should be rewarded with a better deal, this could mean cheaper prices, or more cover for your money.

This applies especially to:

• younger drivers
• people over 70
• any other drivers that insurers might consider higher risk.

It can particularly pay to shop around at the first-year renewal. Simply letting your policy roll-over for another year could mean you pay higher premiums.

Your provider will get in touch three or four weeks before the renewal date, giving you a chance to decide if you want to stick with it or find a cheaper option.

Comparison sites are usually the first place to find some quotes.

But try to use at least two different sites, as they don’t always use the same criteria or cover the same providers.

Remember, cheapest is not necessarily best. Get the right cover or your policy won’t pay out when you need it.

Compare like for like – if you’re only looking for fully comprehensive deals, you can use the Defaqto comparison system.

Compare car insurance policiesOpens in a new window on the Defaqto website.

Comparison sites aren’t always the best way to find the cheapest deal or the most suitable cover.

Insurance brokers can help you get the best insurance for your circumstances, particularly if you could be considered higher risk.

Find a broker on BIBAOpens in a new window

Some things usually come with comprehensive car insurance – but not always. They might be important to you, so check the small print of your policy carefully.

For example, check if you’re covered for:                                                          

• car stereo, speakers or sat-nav
• personal belongings that are in the car
• vehicle recovery or accident transport
• windscreen damage, and loss or theft of keys.

Other questions to ask:

• Will I get a courtesy car? You might only get it if you use an approved repairer. Check how long you can keep the car – some insurers limit this cover to between 14 and 21 days.
• Do I have to use a specific repairer? Your cover might be affected if you don’t use an approved repairer. For example, some insurers limit the windscreen cover if you don’t use the approved repairer.
• Can I add named drivers? These are extra people who can drive the car under the same policy, perhaps a spouse or child.
• Is there a multi-car policy available? If you live in a household with more than one vehicle, most insurers will allow you to insure them all under one policy, with discounts for each car added.   

You need to give your insurance company accurate up-to-date details about yourself and your car. Failure to do this might result in your policy not being valid – and so no paying out on any claims. Plus, it might be harder and more expensive to get insurance in future.

Make sure you tell your insurer if you:

• change address
• use your vehicle for business
• get points added to your licence
• change your occupation or trade
• modify your car – for example, you install alloy wheels
• have an accident or have previously made a claim
• change your alarm system or other security, or the place where you park your car.

You can ask your insurer to cancel your policy at any time, but there are a few things to be aware of: 

• you’ll still need valid insurance if you want to keep your car on the road

• you won’t earn the current year’s no-claims bonus if you cancel midway through

• you’ll usually have to pay a cancellation charge, unless you’re at renewal. 

If you’ve paid upfront and haven’t made a claim, you’ll receive a refund for the remaining months – minus any cancellation fees.