Guide To Car Insurance

The first thing to note is that over 100 insurance companies offer motor car insurance in England, Scotland and Wales and each companies' policy wording can be different - so always take advice and, if in doubt, make sure you ask!

This is meant as a general guide and is by no means a definitive, legal guide - so please ensure that you use it for information only. We will briefly cover the following questions:

What is 'Third Party Only' Car Insurance Cover?
What is 'Third Party Fire & Theft' Car Insurance Cover?
What is 'Comprehensive' Car Insurance Cover?
What type of car insurance cover is best for you?
Why do costs of motor insurance cover vary so much?
Any other things I should be aware of when choosing my motor insurance?
And finally, shop around…
There are three main types of motor insurance policy, namely:

Third Party Only (often referred to by the initials,TPO)
Third Party Fire & Theft (often referred to by the initials,TPF&T)
Comprehensive (often referred to as Fully Comp.)
Each of these different types of cover can be briefly explained as follows:

What is 'Third Party Only' Car Insurance Cover?
This covers the policyholder against damage to a third party's property or to the third party themselves.

In other words, if you run into another car and cause damage to that car and injure the occupant(s) of that car, a Third Party Only policy will pay for the repair to that other vehicle, and will pay for any medical claims or injuries suffered by the occupant(s) of that other car and any passengers in your car other than you. A Third Party Only policy will not pay for the costs of repairing your own vehicle nor will it pay anything toward your medical expenses if you are injured.

In addition, if your vehicle is stolen or catches fire, a Third Party Only policy will not make any payment toward the theft or repair of the vehicle.

What is 'Third Party Fire & Theft' Car Insurance Cover?
This is exactly the same as the Third Party Only policy, set out above, however a Third Party Fire and Theft policy will pay out in the event that your vehicle is stolen or sets on fire.

What is 'Comprehensive' Car Insurance Cover?
A comprehensive (normally known as a "fully comprehensive") policy will pay-out for third party damages and injuries, will pay-out in the event of your vehicle being stolen or set on fire, and will also pay for any damage to your own vehicle (regardless of whose fault the accident was).

What type of car insurance cover is best for you?
This is a more difficult question to answer than you might think at first sight. Obviously, everyone's circumstances are different and again, you should take care to make sure that you ask the right questions to get the right cover for you.

However, as a general rule of thumb, the following points are worth noting:

If you are young and driving an inexpensive first car then you will probably find the cost of comprehensive motor insurance very high (an example would be a 17 year-old living in a main city, buys a second-hand car for £1,000. The cost of a comprehensive policy could be as high as £2,500 and the cost for a Third Party Fire & Theft policy could reduce to approximately £1,700. So, the saving of £800 on the annual motor insurance policy is a large part of the value of the vehicle). If you hold a TPF&T policy and have an accident, providing that the accident was not your fault, the other driver's insurance policy will pay for repairs or offer a replacement value of your car (if it cannot be economically repaired). However, if the accident is your fault and your car is a "write-off" or is badly damaged then it is up to you to pay for the repair or replacement of the car.
If you are young and driving a more expensive car then it can make more sense for you to have Comprehensive insurance. A motor insurance premium of £2,500 for a Comprehensive policy can appear to be money well spent if you have an accident, which is your fault, and your car has a value of (say) £7,500. Your Comprehensive policy will pay for repairs to your car or will offer you either a cash sum or a replacement car of similar age and mileage (as opposed to you being £7,500 out-of-pocket).
Once you are over the age of 25 years old, and providing that you do not have a poor driving record (either by way of a number of accidents or motoring offences), the cost of obtaining Comprehensive insurance can drop quite considerably and therefore you should always look at obtaining Comprehensive insurance.
Of course, when you ask for a motor insurance quote, you can always ask for a quote on Third Party Fire & Theft terms and a quote on Comprehensive terms - that way you can look at the difference in cost of each type of cover, and make up your own mind as to which policy best suits your particular needs.

Why do costs of motor insurance cover vary so much?
Each Insurance Company employs underwriting staff who are responsible for underwriting the costs that the insurance company may have to pay out to the policyholder or third party. Underwriters have a wealth of statistical information, and it is from this that they calculate the likely (risk) cost of insuring a particular vehicle for a particular individual.

You may disagree with some of the points below. However, the cost of motor insurance in the UK is largely dependent upon the following main factors:

Your age - The younger and less experienced a driver you are, the more likely it is that you will have an accident and make a claim on your insurance policy.

No Claims Bonus / Discount - Each year that you insure your car, and do not make a claim on your policy, you receive what is called a "no claims bonus" (or discount). This can allow you a discount of up to 70% off the cost of your insurance (if you have driven accident and claim free for five years). So, the more "no claims bonus" that you have, the cheaper the cost of the insurance.

You can apply to have a protected no claims bonus, so that in the event of you having an accident you do not lose your "no claims bonus". Most Insurance Companies will offer "protected no claims bonus" terms in their policies however, this will cost more (but is, in most cases, a worthwhile additional sum to pay - after all, a 40% no claims bonus on a motor insurance policy costing £2,000 before discount, is worth an £800 per annum saving. So a small additional premium of (say) £50 to protect your "no claims" bonus is often a good investment).

Insurance Group - Most motor cars are given an insurance group ranking - which is an analysis by the motor insurance industry of the level of risk involved with each car type and group (often based purely on the likely repair costs). A high-powered car will be a group 20 (the highest possible risk, and therefore the most expensive car to insure) whereas a small "mini" hatchback may only be a group 4 (and therefore a cheaper car to get insurance cover on). Most motor dealers and garages are able to advise you of the likely insurance group rating on each car.

Engine size - The more powerful a car is, the more likely it is to be involved in high speed accidents (which cost more to repair than lower speed accidents).

Your occupation and how many miles a year you drive - What you do for a living can make you a higher risk. An example would be someone who travels regularly in their car, as part of their job, is seen as having a higher risk of being involved in an accident, than someone who only uses their car at weekends.

Where you live and whether the car is garaged or parked on a road. The density of traffic in the area that you live in can dictate whether you are more, or less, likely to have an accident. In addition, theft and break-in to cars is more prevalent in certain towns and cities. Of course, if your car is simply parked on the street (rather than being put in a locked garage each evening), then this too can have a bearing on how susceptible your car is to theft or break-in.

The value (cost) of your car and the make and model - The value of your car is a factor in the risk that the Insurance Company is taking. If your car is a £50,000 "super-car" then you can expect to pay a higher premium than someone driving a £5,000 "super-mini". After all, if either car were involved in a serious accident, the Insurance Company will be left with a bill for £50,000 or £5,000. In addition, some cars are cheaper to repair than others (availability of parts, specialist body-shops for more specialist cars etc). Each of these factors plays a role in determining the cost of your motor insurance policy.

Whether you have had a history of accidents or motoring offences - Fairly obvious - if you have spent your entire driving experience careering from accident to accident (and thus costing Insurance Companies lots of money) then you can expect to pay a far higher premium than someone who has been driving for ten years without any accidents. In addition, if you have speeding fines and reckless driving fines (i.e. penalty points on your license) then the Insurance Company will charge you at a higher rate than a more "sedate" driver.

Benefits included in your motor insurance policy - Many insurance companies offer benefits that other insurance companies do not offer. The most common example is you being supplied with a free courtesy car in the event that your car is off the road due to an accident. There is a cost associated with the benefits that you receive in your motor insurance policy. The more the benefits, the higher the price that you will pay.

The excess charge that applies to your policy - Insurance companies issue policies that have a "compulsory excess" (and often allow for a voluntary excess). An "excess" is the amount that you are responsible for, in the event of you making a claim on your policy. Lets take the example of you having a policy with a £100 excess. If you have an accident and the repair bill is £500 then you have to pay the first £100 and the Insurance Company will pay for the balance of £400. (Of equal importance is that if your policy has a £100 excess, and you chip the paintwork of your car, resulting in a £50 repair bill, you cannot claim from your policy as the amount of the claim is lower than the excess amount of £100). You can see that the larger the excess (i.e. the amount that you have to pay if you make a claim), the less that the Insurance Company will have to pay out. So, policies that have large excesses are often less expensive than policies with smaller excesses.

In addition, whilst most insurance company policies have a compulsory excess, you can also agree to take a voluntary excess charge, over and above the amount of the compulsory excess. If your policy has a £100 excess charge and you agree to an additional excess of (say) £500, then in the event of a claim you have to pay the first £600 of the claim, and the insurance company has to pay for any balance above this amount - a voluntary excess can often reduce the cost of your motor insurance policy however, you will have a larger amount to pay in the event of you being involved in an accident.

Car security (alarms, immobilisers etc) - It's a sad fact that car theft and break-ins are commonplace within most towns and cities. If you have fitted a car alarm and immobiliser it is less likely that your car will be stolen - you can therefore expect to pay less for your motor insurance policy than someone who has no security device on their car.

Any other things I should be aware of when choosing my motor insurance?
Yes - lots of them, lets go through the most important ones :

Motor insurance is a legal requirement - A motor insurance policy provides you with cover (and therefore peace of mind) against potentially very high costs. After all, if you cause an accident that results in loss of life or permanent injury to other people, the cost of the claim can be into millions of pounds. You cannot drive a motor vehicle without a valid motor insurance policy, and there are stiff fines and penalties (including a jail sentence) if you are found to be driving without having motor insurance cover.

Proposal Forms - written and verbal - When you arrange your motor insurance you will either: complete and sign a written Proposal Form; or you will complete the Proposal Form verbally (over the telephone with a sales operator - in which case the telephone call will be recorded and can be replayed if required). Each of the questions that you answer at the Proposal Form stage is the basis of the insurance contract. So, if you have answered any of the questions incorrectly then the Insurance Company can declare the policy null and void from inception. A worst case scenario is that you have altered the engine management chip in your car, or you have fitted high performance parts to your car - but at the Proposal Form stage you simply said that your car was a basic 1.6 GL. You then have an accident and look to your Insurance Company to pay for the cost of your car, as it is a total write-off. The Insurance Company sends an Inspector to view your car and the Inspector identifies that your car was not a basic 1.6GL but had been modified. The Insurance Company can declare your policy to be null and void from inception and can (legally) refuse to pay you any money whatsoever. So, always make sure that you answer every question accurately (and honestly).

Your motor insurance Certificate and Policy - Your motor insurance certificate is often a "shortened" one-page document and is normally accompanied by your insurance policy document (which can often run to many tens of pages). You must study your policy, as this is the document that forms the basis of the contract between you and the Insurance Company. There are many different types of policy wordings/rules (for example, your policy may not cover drivers of your car who are under 25 years old) so make sure that you read it and that you have asked about the policy conditions at the time you take it out.

Value (cost) of your car - The value that you put on your car at the time you take out the policy is not necessarily the amount that you will receive if your car were to be written-off. All cars depreciate on a monthly basis and are therefore worth less at the end of a year than at the beginning of a year. In addition, you may have paid full dealership price for your car a few years ago and the cost of buying a similar car today may be much less. So, if you are unfortunate enough to be involved in an accident that results in your car being declared a total loss (write-off), you have to be prepared to be offered less than you might think your car was worth. Most Insurance Companies will now try and find you a replacement car, with similar age and mileage to your own car, and supply it directly to you rather than settle a cash amount upon you.

Multiple policy discounts - Many Insurance Companies will offer you a discount if you have more than one policy with them (for example you may have your household insurance policy and car insurance policy with a different insurance company, as they were the two best quotes that you obtained when you took out your insurance). It's worth checking out when you next obtain a quotation.

And finally… Remember to shop around and get the best cover at the best price (if something appears to be cheap, you may well regret it if you come to make a claim and find policy exclusions, large hidden excesses, poor claims service etc.). An independent intermediary (like us), agent or broker is always worth trying, as well as one or two of the "big name" direct insurance companies. Remember, there are over one hundred companies out there, all trying to make a profit out of motor insurance - and each of them will have a different set of underwriting criteria, such that what may be deemed to be a poor (and high cost) risk to one insurance company may be seen as an acceptable (and low cost) risk to another insurance company.

The old adage about "you get what you pay for" is never more true than when choosing your insurance cover - make sure that you get the best cover at the best price.