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Car insurance explained

What does car insurance cover?

This very much depends on the type of policy you have, but car insurance typically covers your vehicle, the damage that you might cause to other vehicles, to the property of other drivers and to other motorists generally.

Car insurance policies can include, or can be extended to include, cover for a host of different items, including personal belongings, medical expenses and breakdown assistance and legal cover.

There are 3 main types of car insurance:

  1. Third party

Third party insurance is the lowest level of cover, protecting you against damage that's caused by you or one of your passengers to others. That includes damage to other drivers and their vehicles as well as accidental damage to lampposts and walls. Third party does not cover your own car – you'll have to pay for any damage to your vehicle yourself.

  1. Third party, fire and theft

Third party, fire and theft insurance covers everything included in third party cover, but also covers the cost to repair or replace your car if it's stolen or damaged and or destroyed by fire.

  1. Comprehensive car insurance

Comprehensive car insurance has the widest level of cover available, which includes both of the and also covers wider damage to your own vehicle. Some policies will also cover you to drive the cars of others as well as hire cars (probably only up to third party)  

How are car insurance premiums calculated?

Insurers set the amount you'll pay based on a number of factors, including your driver record, your personal circumstances, where the car is kept and the car itself.

Example - Older drivers with years of experience who live in a relatively safe area and driving a sensible car will have a relatively cheap Premium.

Example - Young inexperienced drivers who may have a high performance car will pay a much higher premium.

What is excess on your policy?

The excess is the amount you pay towards any claim you make on your car insurance policy.

For example, if you have a claim worth £700, and you have £150 excess, you'll only receive £550 from your insurance company.

Most car insurers use two types of excess.

  • A compulsory excess, which the insurer set and can't be modified
  • Voluntary excess, which is set by yourself when selecting the policy

Note: It’s important to set your voluntary excess carefully as the more excess you are prepared to pay towards a claim you will generally receive a lower premium from your insurer. Having a large excess makes claiming on your policy expensive.

Does my insurance cover me to drive overseas?

If you take your own car into the EU, your insurer will automatically provide cover to meet the minimum legal requirements of the country you're driving in. Be aware, as this is rarely more generous than basic third-party insurance.

If you have comprehensive cover your insurer may extend your policy for a limited time overseas at the same level. This 'free' allowance period can vary between insurers from a long weekend to a whole year's worth. 60 to 90 days is the usual rule of thumb.

Do I need to protect my no claims bonus?

The no-claims bonus is a discount car insurers offer you if you stay claim free for an extended period of time. In general, the longer the period the larger the no-claims bonus will be.

Be aware that the no-claims bonus will be cut if you make a claim, but the size of the cut varies between insurers. Insurers also have different policies on whether a claim that isn’t your fault will affect your bonus.

You can limit the impact of a claim on your bonus by paying to protect it. You'll typically have to pay 10% to 15% of the premium and it's usually available only after four years with the same insurer.

If you protect your no-claims bonus, making one claim in a year will see your discount fall or disappear. Making two claims in a year won't affect your no-claims with some companies, but with others your no claims could be reduced.

An important point to remember is that a no-claims bonus does not protect your premium. If you make a claim your insurer will take this into account and the cost of your cover may increase while the percentage discount you get may remain the same.

Can I drive other vehicles under my policy?

Some comprehensive policies will allow you to drive the cars of your friends and family and may also allow you to drive hire cars, too. You can add other drivers to your policy, known as 'named drivers', so they're also covered to drive your car.

The most common Insurance add-ons

Courtesy cars A courtesy car is quite simply a replacement vehicle provided by your insurer if your car is off the road following an accident. Some insurers will provide a courtesy car as standard, but this is usually under the condition that your car is fixed by one of its approved repairers.

Some insurers offer a courtesy car only if your car is damaged in an accident, not if it's stolen. Others can charge a premium if your car is stolen and or if your vehicle is a write off.

Legal expenses insurance As it sounds this is a legal expenses insurance that will cover the cost of legal action resulting from a car insurance claim. The insurance covers events that arise from using your car, which includes taking action against a third party for negligence, or defending accusations made against you.

Breakdown cover Breakdown cover is often sold as an add-on and can cost up to £35. Breakdown cover can be extended for driving in Europe to provide cover on the continent. A large number of manufacturers include breakdown with their new models these days.

Personal accident cover Basic personal accident cover is included as standard in most policies. However, you can pay around £20 to increase the benefit to £100,000. This can also be bought separately.  Windscreen cover Windscreen cover, which is often included with a comprehensive policy, either repairs damage or replaces your windscreen. This is well worth taking out if not covered in your policy.

Key cover Key insurance helps pay for a replacement if your keys go missing. The cover provided will also pay for replacement locks. As keys and car immobilisation is getting more complex a replacement key can cost upwards of £250 on some models.

What fees can be expected?

Adjustment fees A cost is likely to be incurred if you need to change your policy. Amendments can range from changing the name on your policy (if you get married, for instance) to adding a second driver. The fee could be as high as £35 and this is on top of any increase in premiums caused by the changes.

Cancellation and ‘cooling-off’ cancellation fees If you decide you no longer want your policy, even within the 14-day cooling-off period, your insurer may charge you a fee. Under the law the fee has to be ‘reasonable’ but can still vary greatly from provider to provider.

Pay monthly APR Paying monthly for your car insurance may seem like a good way to spread the cost, but it can prove expensive. Paying monthly means taking out a high interest loan from your provider – sometimes with APRs as high as 40%. You will find a cost saving If you to pay your insurance for the year in a lump sum.