A beginner’s guide to car insurance
If you want to drive in the UK, it is a legal requirement to purchase car insurance.
All drivers must be protected from financial liability if they injure or damage the property of a ‘third party’ such as other drivers, passengers, cyclists and pedestrians.
Car insurance policies vary enormously depending on the kind of cover you choose and your insurer. However, there are three main categories.
Third party
Legally, this is the minimum cover you can have if you want to drive a car.
If you are involved in an accident, the insurance company compensates other people for damage to their vehicle and injuries they may have sustained. Third party insurance will not cover costs related to your car.
Because third party insurance is often the cheapest cover, it can be a good option for those on a tight budget. You could also consider third party cover if you drive a low value vehicle.
Third party fire and theft
In addition to coverage offered by third party insurance, third party fire and theft (TPFT) covers your expenses if your vehicle is stolen or damaged by fire.
Comprehensive
This is the most extensive kind of cover. As well as the benefits of TPFT, a comprehensive policy will cover the damage to your own car if you are involved in an accident.
You may receive additional benefits such as a courtesy car, breakdown cover and windscreen protection. Some policies pay legal expenses if you are involved in an accident with another driver.
Although comprehensive is generally the most pricey, it may be worthwhile if you have an expensive car and could not afford to replace it. Some insurance companies only offer comprehensive cover on more valuable vehicles.
The excess
Even with car insurance you will probably need to cover some of the cost yourself if you need to make a claim. The excess is the amount you pay before the insurance company absorbs the remainder of the cost.
Most car insurance policies have a compulsory excess – the minimum you need to pay towards a claim.
A voluntary excess is an additional amount you agree to pay toward any claims. Increasing the amount of your excess could cut the cost of your premiums.
It makes sense to set the excess at a level you can afford or you may not be able to get your car back on the road after a collision.
No Claims Bonus
Your insurance company will reduce the amount of your premiums every year you go without making a claim.
Although every company is different, most insurers place a five-year cap on the No Claims Bonus (NCB). Once the maximum level has been reached, some companies offer a discount as high as 65 per cent on your premiums.
It is possible to protect this bonus by paying a small fee on top of your premiums. By protecting your NCB, you can normally make one claim without losing your discount.
However, your premiums could still increase if you make a claim. Although you have safeguarded your NCB, the incident will appear in your claim history when the company calculates your premiums.
How to cut costs
In addition to your NCB, there are a number of ways to reduce the amount you pay for premiums such as:
- Not buying sports cars or vehicles with powerful engines. Statistically these kinds of cars are more likely to be involved in an accident.
- Adding security features to your car such as alarms and steering locks.
- Keeping your car in a garage to reduce the risk of theft.
- Adding an experienced older driver to your policy if you are under 25. However, you should never falsely name someone else as the main driver as this is considered fraud.
- Getting a range of quotes when looking for a new supplier.
- Paying for your insurance in a lump sum, rather than monthly instalments.
**This material is for information purposes only and should not be considered financial advice. We strongly encourage our readers not to rely solely on this content, but to seek independent advice when making financial decisions.**
