A Complete Guide to Car Insurance


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By Crispin Bateman

on Monday 18 February 2019


Paper car being protected by two hands

There are a lot of articles online about car insurance in the UK – we have quite a few ourselves, from car insurance for new drivers to guides regarding insuring a recreational vehicle (RV) in the UK.

This is the Compare UK Quotes Complete Guide to Car Insurance, including everything you could possibly want to know, and if it’s not in here, you don’t need to know it!

Chapter One: Car insurance defined

Chapter Two: The cost of motor insurance

Chapter Three: Types of car insurance

Chapter Four: Car insurance additions

Chapter Five: Car insurance FAQs

Chapter One: Car insurance defined

What is car insurance and why do I need it?

Driving a car is a dangerous activity. We can talk about being properly licensed and taking care to drive appropriately. We have seatbelts, speed limits and artificial intelligence systems to limit the road traffic accidents that occur, and the injuries sustained if they do, but at its core, driving is still dangerous.

After all, you are in a metal box, hurtling at 30 to 70 (and more) miles per hour down roads and tracks that could be wet, icy or in poor condition.

A lapse of concentration can mean smashing your vehicle into another one coming the other way. Or a post, or a tree.

Let’s not even consider the horror of possible other outcomes.

The damage done when an accident happens can be substantial – to you, to any other vehicles, to the environment and, unfortunately, to the people involved. Damage is expensive and it is only fair that it is paid for. Cars need repairing or replacing, the environment needs returning to its former state, and compensation must be paid to anyone hurt.

You don’t want to be footing that bill out of your own pocket! You need car insurance to make sure that someone is there to provide all that money to cover the costs of an accident, and in the UK, it is a legal requirement of being allowed to drive on the road.

How does car insurance work in the UK?

The whole concept of insurance is a little like gambling, only you’re the casino, not the one doing the gambling!

Every time you go out on the road, your insurance company is gambling that you get to your destination safely. If you do, they win, and if you don’t, then they lose and must pay out a substantial amount of money to put everything right.

To mitigate this high risk, the insurance company ask for an amount of money from you, either annually or monthly. This is called the premium.

If, over your time as their customer, you pay more in premiums than you cost them in pay outs, then the insurance company profits. If you don’t, however, then they’re down in their gamble and must suffer the financial consequences.

Thankfully for insurance companies, we are all working hard to make sure we don’t crash! Really, we’re all on the same side.

Chapter Two: The cost of motor insurance

How to reduce premiums

Everyone wants to save money on car insurance premiums. Very cheap car insurance is a draw for every single motorist, and it isn’t unusual for people to scour car insurance quotes for hours or even days, looking for the cheapest car insurance in the UK.

Reducing the cost of your premiums is essentially simple to understand once you look at it from the perspective of the car insurance company: lower your risk. If you lower the level of risk, show them that the odds of you having an accident are less than someone else, then your premiums will drop to match that information. But how do you prove that?

Read More: Tips to Cut the Cost of Your Car Insurance

Cheaper insurance tip 1 – voluntary excess

The excess is the amount you have to pay towards any costs before the insurance company has to dig into its own pocket. There’s always a level of compulsory excess on any car insurance policy, but you have the option to add a level of voluntary excess as well, bringing the total excess up and mitigating the chances the insurance company will have to pay out.

As an example, imagine you crunch your car on a bollard, knocking it slightly out of place. The repair bill for your car comes in at £450, and the repair for the bollard is £300. If the excess were zero (it never is), then the insurance company would have to pay £750 for this minor incident.

If your total excess is set to £500, however, then the cost to the insurance company here would only be £250 (and you’d have to pay £500 yourself). That’s much better for them and shows that you are a substantially lower financial risk.

That excess of £500 might feel like a real hindrance in this example, really making it so that it’s not worth bothering to claim at all – you could just pay to get the bollard fixed privately and live with the dent to your bumper, maybe even see if you can get a replacement part from a scrapyard for a fraction of the price and fix it yourself.

This lowers your risk to the insurance company even less, as you’re not asking them for a penny!

Having a higher excess is a great way for the insurance company to feel the risk is shared and not all on them, and in a major incident, it has little impact – a significant accident with a total bill of £20,000 is still going to see £19,500 of that covered by the insurer, and you being out of pocket by £500 at that point will seem little more than pocket change.

For an in-depth explanation of what excess means for car insurance, see our full guide here

Cheaper insurance tip 2 – black box insurance

The uptake of black-box insurance (or telematics insurance) is on the rise. Providing the insurance company with accurate data to prove what a good driver you are is probably the best way to prove to them that you are a low risk and thus shave pounds off those premiums.

Black box insurance is where you have a third-party device fitted to your car that sends information about all your driving habits to the insurer so that they can build up a picture of your skills and adjust your premiums accordingly.

It’s an amazing boon for new drivers who have no driving history to use in their favour. For more information on black box insurance, take a look at our guide Black Box Car Insurance Can Save You Hundreds.

Cheaper insurance tip 3 – no-claims bonus

At the end of every year of driving, if you haven’t had to call to involve your insurance company that year, then you get a mark on your insurance record which is called your no-claims bonus, or no-claims discount (NCB or NCD). Each year of NCB up to five years will provide a substantial discount on your premium as it is more solid proof of your good driving.

A full five years NCB can halve your insurance costs!

Unfortunately, once you do call on your insurance company to pay for an accident, you lose your no-claims bonus (or some of it, depending on the situation). But still, it can be built up again.

Protecting your NCB is something that many drivers worry about and is often the reason why people are willing to simply pay out for smaller claims. After all, if your excess is £500 and the total cost of the repairs is £600, it isn’t worth losing your NCB over that £100 you could claim.

Some insurers offer an additional ‘no-claims protection’ option on to your insurance, which prevents you from losing your no-claims bonus if you have a crash in that year. This is worth looking into if your discount is particularly high.

Cheap insurance tip 4 – who you are

Where you live, how you store your car overnight, your age, your occupation – all these seemingly small factors can have a significant impact on your car insurance premiums. Insurance companies use all sorts of data to determine your risk factor, and that includes the level of vandalism or theft in your area, and whether your job has you driving a lot or during the night.

Anything you can do to improve this information will help lower your premiums, from adding an additional alarm system, to slightly rethinking your job title. Of course, you can’t change your age, but knowing that your insurance will drop over time is at least some future relief.

Cheap insurance tip 5 – your car and how much you drive

There are 50 levels of car insurance groups, from 1 to 50, that tell an insurer how risky your model of car is. Group 1 cars like the Vauxhall Corsa are substantially cheaper to insure than an Audi R8 or other group 50 vehicles, so if you want to have cheap insurance, drive something smaller and with a little less oomph!

Modifying your car will also make a change to your premiums, whether that’s in a positive direction by improving security, or slightly negative because you added alloy wheels. Make sure you do alert your insurer of any changes to the vehicle as failure to do so can result in invalid insurance – and you never want to discover during a claim that a small adjustment you made to your car means you have no cover.

Mileage is another huge factor - cars that are on the road more are a higher risk. It is important that you do your best to accurately estimate your mileage to avoid any later issue and contact your insurer to let them know if you pass your annual estimate early.

Cheap insurance tip 6 – other drivers

Adding a secondary driver to your insurance is going to change your premiums – but surprisingly, sometimes it can change it for the better! Having a second respectable driver on the paperwork is a good way to lower your insurance.

Chapter Three: Types of car insurance

Understanding the level of cover

There are three levels of car insurance cover in the UK:

Third-party (TP)

Third-party insurance is the most basic level of cover available to make you legal on the road. It simply covers other people’s costs should you cause an accident, so if you crash in to someone and cause £5,000 worth of damage to their car, that money (minus the excess) will be provided by your insurer.

Third-party car insurance does not cover you or your vehicle in any way, so if that crash also caused £5,000 worth of damage to your car, you are on your own!

Third-party fire and theft (TPFT)

TPFT car insurance is simply third-party insurance with additional cover should your car be damaged due to a fire or if it’s stolen.

Fully-comprehensive

Fully comprehensive insurance covers you and your car as well as everyone else on the road. It is the only type of insurance we at Compare UK Quotes recommend, and though it is considered to be the most expensive class of insurance, it can actually surprise you, with fully comprehensive car insurance quotes coming in at similar levels to comparable third-party-only ones.

Why is this? By opting for fully comprehensive insurance, you show yourself to be a responsible driver who isn’t just trying to skimp on costs – and that, ironically enough, makes you a lower risk! It isn’t true all the time but there are plenty of policies where the price of fully comprehensive insurance is actually cheaper than the third-party or TPFT alternatives. Not opting for it in that case is just mind-boggling!

Fully comprehensive insurance may also provide some other benefits. Some policies cover you for driving someone else’s car, they may include breakdown cover and offer a courtesy car should you be off the road. Make sure you check any extras that are part of the policy and (to save on costs) opt out of anything you don’t feel you would need or use.

If you are intending to drive a leased car, then you will have to get fully comprehensive car insurance cover as part of the lease contract.

Vehicle use - the lesser-known levels of car insurance cover

Making sure you have the right level of cover to make sure you are legally insured in all situations is more than simply choosing between fully-comprehensive, TPFT and third-party insurance. The intended uses of your vehicle is equally important:

Social and domestic only

The most basic type of car use is social and domestic only. This is actually a rarer level of car use than you may expect, with some insurers not using it at all (in preference to social, domestic and commuting). As its name suggests, social and domestic cover only gives you insurance for non-work driving. This means you are covered to drive your family on holiday, for trips to the supermarket and zooming around town dropping the kids off at swimming classes, but importantly, NOT to get to work.

Many people with this level of cover don’t realise that it doesn’t provide insurance for them on their daily run to the office, but the cheap cost of the premiums reflects the fact that you are not regularly out in rush hour and if you did have a crash on the way to work, you could find your insurance invalid!

If you are unsure and you regularly drive to work, it’s worth checking your policy and upgrading if needed – it’ll be a minimal cost and could save you thousands in the long run!

Social, domestic and commuting

This level of cover is suitable for the huge majority of car drivers in the UK. It insures you for all the family-oriented driving mentioned above, plus it covers your daily run to work.

Note that the commuting aspect of this level of cover does not give you any insurance to drive your car for work purposes (like visiting a client as part of your job), for that you need:

Business car insurance

Getting insurance that covers you for business use entitles you to drive to multiple work sites, make calls to customers and perform basic tasks that are needed for work (like going to the shop for supplies).

Note that this level of insurance does not allow you to use your vehicle in a way that is integral for your business.

Commercial insurance

This top level of business insurance will cover you if you are engaged in a business where using the vehicle is a key part of the job. Examples include:

  • Courier
  • Taxi
  • Ice Cream Man

Chapter Four: Car insurance additions

Why is my car insurance so expensive?

Are you just paying for car insurance or are you paying for car insurance, legal cover, breakdown cover, a courtesy car, low excess, unnecessarily high mileage and more?

There are a host of car insurance additions which may be useful to some but are completely unnecessary to others and yet can be part of your policy without realising it. Some of the more common ones are:

Breakdown cover

If you are a member of the AA or RAC then you simply do not need this option, yet it is included on many fully-comprehensive policies as standard.

If you don’t have breakdown cover elsewhere and don’t want to look for separate third-party cover, then this can be very beneficial.

Legal cover

Legal cover is for help after an accident when you have been injured through a situation that is not your fault and would like to claim compensation. It provides a single point of communication (through your insurer) and allows you to easily pursue a claim for compensation.

However, like breakdown cover, you may find it better to look outside your insurer for this service. Many personal injury specialists provide a no win no fee service to make a compensation claim and are more specialised and focussed in getting a large award than this basic level of cover from your insurer.

Courtesy car

If you have a courtesy car included in your policy, it gives you an entitlement to an expenses-paid vehicle for your use, should your own vehicle be off the road following an accident.

Again, though, this level of cover through your insurer is unlikely to provide you with the best option, rarely providing you with a car of a similar size or specification to your own and leaving you struggling – especially if you have a family.

You might also be doubling up! Many breakdown services offer this service as well, and car-specialist personal injury companies can offer a superior like-for-like service if the accident was not your fault, known as credit hire.

Drive any car cover

Some fully comprehensive policies offer you additional cover to drive other cars (for example, a friend’s vehicle) as part of your insurance. This can be very helpful, especially if you need to drive another car at no notice.

Be aware that often, the any car cover is only third-party (not fully comprehensive), so although you are legal on the road, if you damage the car you are borrowing you may find yourself in a sticky situation.

Like the other options, there are many specialist insurers that are experts in providing temporary short-term car insurance and these may be a better option if you need to drive a different car for a while than simply relying on this optional extra.

Read More: Our Full Guide to Temporary Car Insurance

Choosing the right options

Remember, you do not have to stick with your insurance provider to get the optional benefits and can look at specialised companies to fill in any holes you need.

Chapter Five: Car insurance FAQs

At Compare UK Quotes, we speak with a wide range of drivers and hear many different questions – here to help are some of the most frequently asked questions to cover:

What is the average cost of car insurance?

There are so many factors that go into determining car insurance premiums (as detailed above) that an average car insurance value is hard to provide. However, if you are looking at your first car at a young age, you can expect to see insurance quotes that exceed £1,000 per year, even in a cheap car. Getting black-box insurance is going to help a lot with that.

Car insurance tends to drop from then on, with your no-claims discount and age both coming in to help. Average insurance in the UK for people in their 30s is likely to be in the £400 to £600 range annually, and anyone with an insurance cost of £200 or less should be very happy with their policy!

How badly do penalty points affect car insurance?

If you have points on your license, expect the cost to increase considerably for the years until those points are cleared. Even a simple speeding fine with points can add hundreds of pounds onto your policy.

Serious driving convictions and driving bans will increase your insurance manifold, and make some companies simply refuse to insure you (meaning you cannot get back on the road easily). This is especially true if you were banned from driving due to driving without insurance.

At Compare UK Quotes, we have seen car insurance quotes topping £4,000 per year for those struggling with driving convictions. Thankfully, there are insurance companies that specialise in providing insurance to high risk customers with a poor history and though the price will be high in the first year, it offers an opportunity to build a good driving record and return to reasonable car insurance prices in the near future.

When do you pay excess on your car insurance?

If you find yourself in a situation where the excess amount exceeds the cost of the repair or comes close enough that you choose not to involve your insurance company, then you will have to negotiate the situation with the other drivers involved and find the money to pay for their repairs as soon as possible (often immediately).

If you are struggling to pay the excess amount, you should contact the insurer who may arrange for you to pay the costs in instalments – covering the cost of the repair in full and adding the amount owed onto your monthly direct debits to help your cashflow and finances. Like all debts, it is best to keep in good contact with the company and make an arrangement that you can properly follow.

Can I drive any car with comprehensive cover?

As described above, you may have additional any-car cover with your fully comprehensive insurance. You should check with your provider for the full details – and remember to check if they provide fully comprehensive any-car cover, or merely third-party to ensure legality when driving.

If you are not insured to drive any car with your standard insurance, you can obtain short-term car insurance from many insurance companies. This temporary car insurance can be from as small a length as a few hours, all the way up to 28 days.

Understanding car insurance with Compare UK Quotes

If you have any more questions regarding car insurance that weren’t covered in this comprehensive guide, do check our library of articles on the subject – there’s sure to be something to help you with your query.


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