How car insurance works
If you’re a new driver, don’t be ashamed to admit that you’re not sure how car insurance works. So, what exactly do you get for your money?
The principle of car insurance is that all motorists pay for financial protection. The money paid contributes to a collective ‘pot’, and money is paid out from this pot to those who suffer an accident and make a valid claim.
What does car insurance cover?
What is covered by your policy varies according to the insurer, and according to which type of policy you take out. It will cover, as a minimum, damage caused by you or your passengers to others. It may also cover your car if it is stolen or set on fire, as well as repairs to or replacement of your own vehicle. There are three main types of car insurance, which are set out below.
Third party
Third party insurance is the minimum any driver in the UK is required to have by law. It only covers damage caused to third parties by you or your passengers. It excludes cover for fire damage or if the car is stolen.
Third party, fire and theft
This is the same as third party only cover, but also includes protection in the event of a fire or the theft of your vehicle.
Fully comprehensive
Fully comprehensive cover is the highest level of car insurance you can get. In addition to what is covered by a third party, fire and theft policy, it also includes replacement or repair of your own vehicle if damaged – even if it’s your fault. If you are the main policyholder, many fully comprehensive policies also cover you to drive other people’s vehicles, as long as you have their permission. This cover is usually third-party only, however.
Extras
A whole host of extras can be added to a fully comprehensive insurance policy. Some may be provided by the insurer at no additional charge, while other options might be available at an additional cost. These can include breakdown cover, loss or theft of keys, personal possessions cover, motor legal protection, personal injury cover, provision of a courtesy car if yours is being repaired, and even wrong fuel cover.
It’s worth checking carefully before taking out any policy, as what is offered free of charge varies considerably from one insurer to the next, as do the prices for optional extras.
How is the insurance price calculated?
A number of factors are considered by insurers when they work out your insurance premium. Broadly speaking, the higher the risk, the more you will pay. They will ask your age, occupation, where you live, the make and model of your car, and whether it has any modifications or security features. They will give you a discount if you have no claims bonus entitlement, and if you have not had an accident, your premium is very likely to be less.
For example, someone in their 50s who works in an office, lives in a rural area, drives a car that belongs to a low insurance group, and has never had an accident or made a claim is likely to get a very good price. By contrast, someone under 25 who lives in a city, drives a fast car, and has recently had an accident will pay far more.
Compulsory and voluntary excess
If you make a claim, you will have to pay a particular sum yourself as a contribution towards the cost. This is the excess, and will be set by the insurer. It can make insurance cheaper if you also add a voluntary excess, so many people do choose to do this.
