7 min read

Everything you need to know about taking out car insurance

Hannah Salih
18 September 2017

We give you the lowdown on how car insurance works and what to do to keep costs down

As excited as you might be to take your new car out for a spin, there’s something you need to do first. Buy car insurance.

In the UK driving without insurance is a crime. You risk an unlimited fine and a driving disqualification if you aren't covered. The police can even seize and destroy your car.

Car insurance also gives you peace of mind. If you damage someone else’s car or your car gets damaged or stolen, you won’t need to pay everything out of your own pocket. The insurance company will cover most of the cost.

There are three main types of car insurance cover

1. Third party only

This is the most basic type of insurance and is the minimum coverage required by law. It covers damage and injury to others if an accident is your fault. It doesn’t cover any damages to your own car.

2. Third party, fire and theft

This offers the same level of cover as third party only insurance. But on top of that, it covers damage to your car if it’s caused by either theft, attempted theft or fire.

3. Comprehensive cover

Comprehensive policies cover both the damage you cause others and your own damages. It doesn’t matter if the accident is your fault or someone else’s.

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What affects the price of a car insurance policy?

The level of cover isn't the only thing that affects the price. Risk is also important. The more likely it is that you'll make a claim, the more expensive your insurance will be.

Here are some of the things that insurers think about when setting your premium (how much you have to pay for the policy):

  • Your age

Certain age groups are statistically more likely to claim. This raises the premium for everyone in that bracket. Drivers aged 18 to 25 tend to pay the most.

  • Your driving history

You can expect to pay more if you’ve had accidents or driving convictions.

  • Your car

Luxury cars and other high value vehicles cost more to repair, which raises the premium.

  • Where you live

Densely populated areas and areas with statistically high crime rates make claims more likely. Londoners pay up to four times as much as motorists elsewhere in the UK.

  • How much mileage you do

The more you drive, the greater the chance you’ll have an accident and make a claim. What you use your car for - your work, for instance - may also influence your premium.

  • Your job

Statistically, entertainers have the most expensive car insurance in the UK. By contrast, paramedics tend to pay the least. (Although maybe don't change your career just for cheaper car insurance).

Tips to cut car insurance costs

Factors such as your age, occupation and place of residence are mostly out of your control.

But you can still make your insurance more affordable. Here’s how:

Pay a voluntary excess

The excess is the amount you have to pay out of your own pocket first when you make a claim. This is set by the insurer and it's called the compulsory excess.

However, you can also choose to pay an additional sum when you claim. This is called a voluntary excess. You’ll have to pay more if you claim but you could save if you don't.

Invest in security

Alarms and immobilisers make cars harder to steal. For this reason, many insurers offer premium discounts if you have them installed. To qualify, your system must be Thatcham-approved.

Watch where you park

Car insurance is typically cheaper if you park somewhere secure, especially overnight. Surprisingly, parking in your driveway is cheaper than parking in your garage.

Buy a telematics policy

Telematics or black box policies involve installing a device on your car or downloading a smartphone app. Your insurer will use this to monitor your driving. If the data proves you’re a safe driver, your premium will go down. The downside is that your mileage may be restricted. Some insurers also operate a curfew system, which means you won’t be able to drive during certain times.

Use multi-car discounts

A multi-car discount allows everyone in your household to insure their car under the same policy. This usually works out cheaper than multiple, individual policies. If this isn’t possible, try adding a more experienced driver - a parent, for instance - as a named driver on your policy.

How to compare car insurance policies

The UK car insurance market is quite competitive, and there are lots of different providers and policies at different prices out there. This means it pays to shop around.

But don't just think about the price when you're making your decision. Cheaper policies tend to have trade-offs. Usually, these involve you paying a bigger portion of the costs out of your own pocket.

Here’s what you should compare between policies:

The excess

This is the amount you have to pay out of your own pocket every time you make a claim.

A higher excess means your insurer has to pay less in the event of a claim. So, the policy will usually have a lower monthly rate. The trade-off is that you’ll have to fork out a larger portion of the costs if you do make a claim.

Any limits on how much you can claim

Some insurers put a cap on how much they’ll pay out on certain parts of a claim. For example, an insurer might put a cap of around £150 per claim for travel expenses (the cost of traveling from the site of an accident to your home). This might not be enough if you tend to drive long distances.

Exclusions

What a policy doesn’t cover is just as important as what it does cover. Some exclusions are standard. For instance, insurers won’t cover a drunk driver. You may also find that certain insurers don’t cover a particular cost - breakdown assistance, for example - while others do.

Your policy may also have conditions that invalidate the policy, for instance if you intentionally put incorrect information on your application. So make sure you read up on the terms and conditions before opting for a policy.

In a nutshell:
  • It's a legal requirement to have car insurance that covers damage and injury to third parties caused through your own fault. Comprehensive policies also cover your costs.

  • Price shouldn’t be the be-all-and-end-all when choosing car insurance. Insurers usually make up for a lower premium in other ways, for example via a higher excess or low payout limits.

  • Risk influences your insurance premium. Your age, the type of car and even your job can raise its price.

by Hannah Salih

Hannah reads all the finance info on the web so you don't have to. She knows all there is to know about your finances but still spends all her money on brunch. 

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