Whether you’re learning to drive or have decades of experience, car insurance provides vital financial protection and peace of mind should your car get damaged, stolen or if you’re involved in an accident. Unlike the optional insurance of a smartphone or holiday, it’s also illegal to drive without car insurance in the UK. In this guide, we explain the basics of car insurance and how it works, to help you choose the right policy and be prepared if you need to make a claim.
What is car insurance?
Car insurance is an agreement with an insurance company that protects you financially from the costs of fixing a damaged car, paying medical bills after an accident or replacing a stolen car. In exchange for paying a monthly or annual fee, known as a premium, your insurer agrees to protect you from the financial losses when something goes wrong. The amount of compensation your insurer will pay for however depends on the type of insurance you take out.
Since buying and running a car can be costly investment, it pays to have the right policy to save you being completely out of pocket after an incident. Car insurance gives you that reassurance that you’ll be compensated to repair or replace your car if, and when the time comes. It also prevents you having to pay the costs of others involved in an accident such as their medical bills or car repair costs.
What is covered under a car insurance policy?
Depending on the type of policy you choose, your car insurance would cover you and third parties if:
- You’re involved in an accident with other drivers, pedestrians or property
- Your car or its contents are stolen
- Your car is damaged, vandalised or written off
However, car insurance can be confusing and not having the right policy could make a claim invalid leaving you to shoulder the costs on your own. So it’s worthwhile understanding how it works and what exactly you are covered for.
Who needs to be insured?
Anyone driving a vehicle in the UK must have car insurance. It’s a legal requirement and not having it can mean a £300 fine and six points on your licence if caught. If you’re caught more than once without insurance, you could be taken to court and risk much larger fines of up to £5000 or lose your license. The police can seize, and even destroy your car if not reclaimed in a certain amount of time. Having your car returned to you after being impounded can be expensive, so it pays to be insured to start with!
If your vehicle is seized there’s a ‘release fee’ of up to £200 plus a storage fee of £20 for every day or part day.
I don’t use my car at the moment, do I still need insurance?
If you don’t currently use your car or don’t plan to for a while and leave it parked in your garage for example, you can avoid paying for insurance by declaring it as ‘off the road’.
To do this you must inform the DVLA and make a ‘Statutory Off Road Notification’ (SORN). Once this is confirmed, you won’t have to pay any car insurance until you declare it as in use again. To submit your SORN you simply fill out the form on the Gov.uk website, or do so by phone or by post.
Types of car insurance
Although car insurance can seem a little overwhelming, it is actually quite simple once you know the difference between the main types. There are three main forms of car insurance that cover different scenarios and provide varying levels of cover.
The cheapest and lowest amount of cover you can legally drive with is simply ‘third party’ insurance. This basic policy only covers other people in an accident deemed to be your fault. Your insurance company will therefore only pay compensation towards the costs of damage to other people’s vehicles, property or the medical bills for their injuries.
This also counts if the person driving your car was not you, but someone else listed on your insurance policy. However, it doesn’t cover the cost of any damages to your own car or any of your own medical bills if you are injured, hence why it is the cheapest type of car insurance.
Third Party, Fire and Theft (TPFT)
A slightly more comprehensive form of coverage is ‘third party, fire and theft’ insurance. As explained above, this will cover any third parties that were involved in a collision caused by you.
However, TPFT also includes added protection for you if car is damaged in a fire or stolen. In these scenarios you could get compensation to replace your vehicle. However, it doesn’t cover any of your own medical costs if you are injured in an accident, or the costs of replacing or fixing your own vehicle for any other type of damage outside fire or theft.
Also known as ‘fully comp’ for short, this is the highest level of cover available and protects you against most situations you could find yourself in with your car. Fully comprehensive covers your own costs if your car is stolen, damaged or destroyed in order to pay for a new car or to fix any damage. It also covers your own medical bills if you are hurt in an accident. Alongside your own expenses, it also covers any third parties involved in an accident and will pay for any costs incurred towards damage to their car, property or medical bills.
As you might expect, this extensive level of coverage comes at a cost, making it the most expensive form of car insurance. However, whilst it’s nice to have the extra protection, you may not need fully comprehensive in some situations. If you only own a very cheap car for example, it may be more cost effective to stick to cheaper third party insurance and simply replace the car after an unfortunate incident.
Additional Types of Car Insurance
If your household owns more than one car, it can often be more cost-effective to take out ‘multi-car insurance’ to cover all of your vehicles under one policy. A multi-car insurance policy can cover up to five cars and by insuring them all with one company, you’ll receive a discount. It also has the added benefit of making it easier for you to manage, with just one annual renewal and less paperwork. Each car can also have a different level of cover if needed.
Temporary car insurance
It is also possible to buy short term/temporary insurance to cover you for a day, a week or up to 1 month. Temporary insurance is ideal for borrowing someone’s car for a short period, renting a vehicle to move house or when renting a car to take on holiday for example.
How much does car insurance cost?
The cost of your car insurance, also known as a premium, can vary wildly in price depending on factors including your chosen insurance company and policy. It also takes into account a number of other factors such as how long you’ve been driving and the type of car you drive.
Factors affecting your premium
To provide you with a quote, insurance companies make a judgement on how likely you are to make a claim in the future and price accordingly. For example, an 18 year old driver with an expensive, high performance sports car is deemed much more likely to have an accident and need to claim when compared to a driver with a low performance family car and 30 years of experience behind the wheel.
There are many factors they take into account when providing you with a quote, including:
- Your age - younger drivers typically pay more
- How long you have been driving - experienced drivers pay less
- Your driving history - whether you have any points on your licence or have claimed before
- The make, model and value of your car - expensive cars cost more to replace and are bigger targets for theft
- The size of your engine - fast cars are more likely to be involved in accidents
- If you car has been modified - cars modified to increase speed and performance are also more at risk of accidents
- Where you live - if you live in a city or high crime area you’re deemed to be more at risk of theft or accidents
- Where you park your car - keeping your car in a garage will reduce your quote
- How well you drive - safe drivers can receive discounts from some providers
Alongside this, even your gender can be taken into account! Car insurance companies often deemed women to be safer drivers than men and historically, car insurance companies have been known to quote lower prices for women. Despite the EU’s gender discrimination ban in 2012 that tried to stop this practice, this can still occur, as uncovered in an article by The Guardian last year.
The price of your premium can also vary depend on whether you buy the insurance directly from the company or through a price comparison website and also whether you qualify for a ‘no claims bonus’.
What is a ‘no claims bonus’?
Whilst it’s nice to know you have the option to recoup some money and make a claim against your insurance if something goes wrong, in some cases it’s better to avoid claiming for as long as possible. Car insurance companies offer an incentive for not claiming called a ‘no claims bonus’. This is essentially a discount on your policy renewals for all the years you go without making a claim. This discount is reduced if you eventually make a claim, although it can be regained after further time without claiming.
The more years that pass without making a claim, the cheaper your insurance will become in the future. The amount of discount you receive for not claiming varies per provider, but a driver that hasn’t made a claim in five years could get a 30% to 50% discount on their renewal. Of course, if you’re unfortunate enough to be in a serious crash or your car is stolen, the potential savings of the bonus may be vastly outweighed by the cost to buy a new car.
So whilst it’s a good way to reduce your annual car insurance premium, if something unfortunate happens, you may have no choice but to make a claim. To read more about this take a look at our no claims bonus guide.
What does the ‘excess’ on my policy mean?
All insurance policies come with an ‘excess’ which is an amount you must contribute towards a claim made on your insurance. This is usually set as part of the policy, but you can also choose to pay a higher excess voluntarily in order to reduce your insurance premium. For example, if you make a claim worth £1000 and your excess is £200, that means you’ll have to contribute £200 towards your claim and in the end receive £800.
The reason insurers charge an excess payment is to discourage car owners from claiming too often for too many minor issues such as dents or scratches. This is because an accumulation of these small claims would quickly put insurance providers out of pocket. So making a customer pay an excess simply encourages them to self-police and only make more worthwhile, high value claims.
For example, if you had to pay the first £200 on your claim to fix a broken wing mirror for example, there would be little point since the cost to fix the mirror, and the amount of compensation you’d receive would be less than this. You’d be better off not claiming at all and just footing the bill yourself.
How do I make a claim on my car insurance?
If the time has come to make a claim, there are certain procedures you must follow depending on the situation you find yourself in. The claiming process differs based on whether your car was damaged or stolen or whether you were in an accident for example.
Claiming after an accident
If you have been involved in an accident, it’s important to firstly swap insurance details with the other driver so that you can make a claim. This includes:
- The driver’s name, address and contact details
- The driver’s registration number
- The driver’s insurance details
It can also be useful to gather additional details and evidence to further help your claim including:
- Contact details of anyone who witnessed the accident
- Photos of the scene and damage if possible
Once you have all of these details, it’s best to contact your insurance company as soon as possible following the accident - ideally within 24 hours. You’ll be asked to provide information about the incident and for your policy details, so it’s essential to have this to hand before calling. Your provider should then provide you with a form by post or online for you to submit the various details of the incident.
Even if you decide not to make a claim, you should still contact your insurer anyway just in case the other parties involved make a claim. Your insurer will also want to be aware of any past incidents when assessing your level of risk in future, and providing you with your next quote.
If your car was damaged in the accident, you should wait for your insurance company to send someone to assess the damage and estimate repair costs, before you get it repaired. If you get it fixed yourself before this, your insurer may not pay out on your claim.
Alternatively, if your car is damaged beyond repair and ‘written off’ then your insurance company should pay you to replace the car. This will be for the amount of its ‘market value’ at the time, and not the value of the car when new.
Claiming if your car is stolen
If your car has been stolen, it’s important to report it to the police and your insurer as soon as you can. You should provide them with all the details of the car, its make and model and registration number, along with where and when it was stolen. You should also inform them of any valuables that were left inside. The police should then provide you with a crime reference number and report it to the DVLA for you.
If the police manage to recover your car, you will be notified and it will go through a process of being assessed for damage and safety before they hand you back the keys. If there is damage to the car, your insurance company may pay out for the repair costs.
If however the car is not found and you have fully comprehensive or third party, fire and theft insurance, your insurer should cover the cost of replacing the car. Again, this will be the market value based on the value of the car at the time it was stolen and may not be as much as you initially paid.