Car Insurance Explained

Car insurance is a legal requirement for all drivers, but when it comes to selecting a policy that’s right for you, it can feel like there’s a lot to take in and the jargon can be difficult to understand.

To help you get to grips with what car insurance is all about, we’ve compiled a rundown of some of the questions you’re most likely to have when trying to find an insurance policy.

Car accident

Why do I need car insurance?

The law says so. It’s illegal to drive a vehicle on a road or in a public place without insurance. The reason for having insurance is so that if you cause an accident and injure another person, or damage their car or property, you’ll be able to meet the cost. Car insurance can also protect you against the expense of accidental damage, theft, fire and flood damage to your car.

Ultimately, if you’re caught driving without insurance, the police could give you a fixed penalty of up to £300, and six penalty points on your licence. The case could even go to court, where you might get an unlimited fine, or even be disqualified from driving. In some extreme cases, your car can also be seized and destroyed.

What are the most common types of car insurance?

1. Third party:
In the event of an accident, third party policies only pay out for injuries caused to the other driver and damage caused to their car, not your own.

2. Third party, fire and theft:
This is the same as third party cover but it also pays out if your car is stolen or involved in a fire.

3. Comprehensive:
If you’re involved in an accident, comprehensive policies will pay out for damage caused to your own vehicle. Some policies have personal effects and personal accident cover. Your car is also covered against fire and theft.

Friends in car

And what is short-term insurance?

Short term insurance is potentially a good option when you need the use of a car for a short period, like borrowing a friend or relative’s car to move house, for example.

A short-term car insurance policy can be taken out for as little as one day, and up to 28 days. It can also be used in addition to your usual policy. This has the added benefit that, if you were to have an accident, it won’t affect the no claims bonus on your main policy. However, be aware that short term policies often come with restrictions, such as having to have held a driving licence for at least one year. It also has to be taken out on a different car.

Coins and notes

How is car insurance calculated?

There are a number of things that will affect the cost of your car insurance. Here are some of the most important factors:

1. The type of car being insured:
Every car is given a group rating of between one and 50 depending on factors such as the value of the car, how much it costs to repair and how reliable it is.

2. The driver being insured:
Insurers take into account factors like your age, job title and they will also look at how many claims you might have made in the past.

3. Where you live:
Insurers will look at data on how many cars have been stolen, damaged or had accidents in your postcode to work out the level of risk. There are things you can do to help bring your premium down, such as keeping your car in a garage and fitting it with an alarm.

Can my engine size influence my insurance costs?

Yes. A car with a larger engine will generally accelerate faster and reach a higher top speed than a car with a smaller engine. Insurers know from experience that high performance cars often result in more frequent insurance claims, so the premiums to insure these kind of cars are even higher.

Car engine

What is car insurance excess?

Insurance excess is the amount of money that the customer agrees to pay in the event of making an insurance claim. The insurer pays the rest.

For example, if you have a car insurance policy with a £100 excess and you are in an accident where your car suffers £1,000 of damage, you would pay the first £100 of the repair bill, and your insurer would pay the remaining £900.

What’s the difference between compulsory and voluntary excess?

A compulsory excess is set by your insurer. As the name suggests, it’s fixed and must be paid whenever you make a claim. With a voluntary excess, you choose the excess amount that you’re willing to pay in the event of a claim. Choosing a higher excess can mean a cheaper policy, but remember that you will have to pay a bigger slice of the repair bill if you have an accident. 

Find out how we can help with your car insurance here.

Published: 11th April 2016

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