Understanding car insurance isn’t always easy. With so many insurers out there, offering various levels of cover, it can be hard to know where to start. What’s more, with everyone being quoted a different price, it can be difficult to tell whether you’re getting a good, or even a fair price. Understanding car insurance is key to getting a policy that works for you.
In this insurance guide we’ll run through the basics; why you need car insurance, what options are available to you, how insurers calculate your premium and what you can do to reduce it.
What is car insurance?
Car insurance plays a vital part in protecting you and other road users. At the very least, your policy will cover costs incurred by others when you’re at fault, but it could also protect you, depending on what type you choose.
Do I need car insurance?
In short, yes. It’s a criminal offence to drive a car on British roads without a valid car insurance policy. If you’re caught at the wheel of a car you’re not insured to drive, you’ll receive a fine and penalty points at the very least, but could even receive a driving ban or have your car seized and destroyed.
To drive any car, you must be named on its valid insurance policy. Even if the vehicle itself is insured, you could be penalised if you’re not correctly covered to drive it.
What if I’m not using my car?
The only circumstance in which you don’t need valid car insurance on a vehicle you own is if it’s declared as SORN; a ‘Statutory Off-Road Notification’. A SORN informs the DVLA that the car is being kept off roads, meaning you won’t be needing to pay for insurance and road tax. You must not drive a car on any public land while it’s covered by a SORN, nor can you park it in the street. It must be stored privately, otherwise you could receive a fine of up to £2,500.
Declaring SORN is essential; you can’t just stop paying for tax and insurance when you’re keeping your car off the road – you must let the DVLA know. If you buy a car that’s declared SORN this doesn’t transfer over, you have to apply for it again in your name. If your car doesn’t have a SORN, you’re liable for tax and must have insurance no matter how you use it.You can apply for a SORN by contacting the DVLA vehicle service on 0300 123 4321, or online at GOV.UK.
You can also do this by post; fill in a V890 application form and mail it to DVLA, Swansea, SA99 1AR.
Once you have your SORN you won’t need to renew it, it stays in place indefinitely. To get the car back on the road you simply arrange for it to be taxed again at GOV.UK, and this will automatically cancel its SORN. You’ll then need to arrange car insurance yourself.
The types of car insurance
Generally, there are three types of car insurance available that offer varying levels of cover.
Third party – This is the minimum cover you can opt for by law. It only covers damage caused by you to other road users, and not yourself or your vehicle. This means that should you be involved in a crash where you were deemed to be at fault, your insurer would pay out repair or injury costs to any third parties, but would not cover your own expenses.
Historically, this was the cheapest type of insurance, popular with owners of not-particularly-valuable cars and inexperienced drivers. However, insurers have noticed those with policies tend to claim more, so prices have risen. So much so, that many fully comprehensive policies are cheaper.
Third party, fire and theft – The next step up, this is much the same as third party, but with a few extra elements of cover. With this option, you’re covered for costs you incur to other road users, as well as in situations where your car has been damaged by fire or stolen.
Fully comprehensive – Fully comprehensive is the ‘peace of mind’ option. It covers you regardless of whether you’re at fault or not, as well as for any costs you cause other road users. You’re covered for almost all eventualities, including fire and theft.
Any owner of a new car, or used car of a particular value should strongly consider fully comprehensive cover. In fact, all road users should, as it often works out cheapest.
Optional extras – Some insurers will offer policy extras as ‘add-ons’ that’ll slightly increase your premium. These will include things like breakdown cover, legal cover, key cover and courtesy cars; and it’s entirely up to you whether you choose to take these or not.
On some policies, these will be included as standard, so always read the details when you’re comparing quotes.
What goes into a premium?
When getting a quote from an insurer, it can seem like they demand a mountain of information for you, but there is a reason for this. They compile this data and compare it to historical trends to assess your level of risk, providing a quote that’s tailored to you as an individual. Ultimately, the bigger claim risk you are, the higher your premium will be. Here’s a breakdown of some of the factors taken into account by insurers.
- Your age. Age and experience is key to your likelihood of making a claim. Historically, younger drivers are more likely to be involved in a collision or accident, so drivers in their late teens and twenties should expect higher premiums than their elders.
- Your driving history. The most obvious indicator of how you – as an individual – drive is how you’ve driven in the past. Having a no-claims bonus spanning several years is bound to reflect well, while a record of accidents and penalty points quite the opposite. When you’re new to driving and have no record to go off as such, insurers will approach this as an increased risk.
- Where you live. Simply put; some postcodes are more problematic than others. Local factors can affect rates of accidents and claims, so insurers will consider any data they have for your area, looking at the roads you’re likely to be driving on day-to-day. Where you live may be considered against the average value of your car to better assess risk.
- Your occupation. Similarly, some jobs are riskier than others. Your occupation gives insight into when, why and how often you might use your car; which is all relevant to potential insurers.
- Its make, model and estimated value. It’s not hard to imagine why the model of your car has great bearing on the price you’re quoted. Not only do rates of claims vary between models, but the value of your car is directly linked to how much any repairs or replacements would cost.
To simplify this, the Association of British Insurers applies a ‘Group Rating system’. This places models into ‘Car Insurance Groups’, bands numbered 1 to 50; based on the cost of parts, repair costs and times, performance and safety. The lower the group the cheaper a car is to insure. Generally speaking, you’ll find small family get-arounds in the lowest groups and high-performance sports models in the highest.
- Its age. The older a car is, the more potential there is for parts to fail, and the higher the likelihood of a third-party or injury claim, too. On the other hand, as cars depreciate they lose value, so your replacement cost would fall. For better or worse, insurers will want to factor in your car’s age.
- How you store it. By keeping your car locked away at night, you significantly reduce the risk of theft or damage.
- How you use it. Statistics show that someone who uses their car to pop to the local supermarket twice a week is much less likely to claim than someone who spends five days a week driving across the country, on unfamiliar roads, for work. Insurers take this into account when assessing risk, so will ask you what the primary use of the vehicle is or will be.
- Its modifications. Insurers are clear that you should not attempt to modify your car in any way. If you do modify your car, or purchase one that has been modified, you’ll either pay more for this or be refused a policy altogether. Any modifications you don’t declare could invalidate your insurance.
- The claims market. Naturally, insurers have to keep what they do profitable. When and where there are spikes in claims, insurance premiums will climb to help the industry cover the costs. In recent years, policies have become more expensive across the board, as insurance providers deal with a landslide of (often fraudulent) whiplash claims. Unfortunately, this has an impact on everyone.
- IPT. IPT is a tax applied to insurance policies by the government. It currently stands at 12%, but can be changed at any time. When it does increase or decrease, insurance premiums will move in the same direction to cover it.
It’s easy, when comparing quotes, to jump straight for the best price car insurance you see - particularly if you’re using a price comparison site. But this could be a mistake. Not all providers are listed on these sites, while it’s important to reflect on the differences in coverage between each provider, or it could end up costing you further down the line. Ultimately, you need to choose a package that works for you. Before signing anything, make sure you consider;
What’s covered as standard? – What’s covered by each policy can vary greatly, even between insurance policies of the same ‘type’. Some will include windscreen and breakdown cover as standard, while for others it may be an optional extra.
Would a different type be cheaper? – It’s easy to assume that third party motor insurance will come in much cheaper than fully comprehensive. But this isn’t always the case. Insurers have noticed more claims coming in from their customers with less provision, and have adjusted premiums accordingly. What this means is that you may actually pay less to be better protected; so always check the alternatives.
What’s the excess? – An excess is a set cost that you’ll contribute towards any claim before your insurer pays up on the rest. Standard excesses vary from insurer to insurer. What seems like a great deal may only be so because you’d be shouldering a sizeable chunk of any claim you make. For any policy, always check what the excess is; you should be confident you could pay it if you needed to.
How to reduce the cost of car insurance
Many factors beyond your control, such as your age, play a part in determining the quote you’ll get for your car insurance. But that’s not to say there’s nothing you can do if you’d like to pay a little less. Here’s some tips on how to get the best deal car insurance you can;
Agree a voluntary excess – Many insurers will allow you to agree a voluntary excess as part of your policy. This is an extra amount you’d pay on top of your compulsory excess towards any claim you make, meaning you’d cover a larger share of any pay-out yourself. Where customers agree to this, insurers will offer lower premiums; however you must be sure you could afford to pay all of your excess if you needed to.
Keep your no-claims bonus – Insurers see a healthy no-claims bonus as a sign you’re a safe driver. True, it’s not as straightforward as ‘deciding’ to keep your no-claims bonus; you can’t help it if someone breaks your car window. But where a potential claim situation arises, you could choose to cover the repair costs yourself to avoid losing your no-claims bonus; for smaller claims this can work out cheaper in the long run. It’s important to note that many insurers request that, even if you do not intend to put a claim in, you inform them of any incidents or work that’s been undertaken.
Store your car securely – When you apply for car insurance, you’ll be asked how you store your vehicle. This impacts your risk of claiming, so you could receive a lower quote from your premium by simply bringing your car into the garage at night, instead of leaving it by the road. Never lie about this though; if you stated you lock your car in the garage at night, but then put a claim in because something happened when it was parked in the street, you may not be covered.
Opt for ‘black box’ insurance – ‘Black box’ insurance is a recent development in the industry, but is increasingly popular. It involves the use of a device to record and track how you drive, providing your insurer with a clearer idea of your individual level of risk. This is a great option if you’re new to driving as it means your insurer won’t have to make so many (costly) assumptions about you, so long as you do drive safe.
Change insurer – It seems obvious, but millions of people have fallen into a loop of renewing their insurance without investigating the alternatives. The motor car insurance industry is an ever-changing beast, and there may now be types of policy on offer that weren’t even around when you first took out your existing policy. When it’s time for renewal, always pick up a couple of other quotes for car insurance online.
Choose multicar – If your household has more than one car, it’s worth checking whether combining their insurance on a ‘multicar’ policy would be financially rewarding. Most insurers now offer this type of policy, and in many cases, it will work out cheaper. You could add a new car to an existing policy, or shop around for a new policy and transfer over your other car(s).
Add an experienced driver to the policy – This is a really popular option, particularly for new or younger drivers. By naming an experienced driver on the policy, often a parent or older sibling, this should bring the premium down as the risk of claiming is statistically less. But you must never lie about who the ‘main’ driver of the car is; this is known as ‘fronting’, is considered fraud and could even result in prosecution.
Opt for a car in a low insurance group – If you’re looking to buy a new car, but are worried about the cost of insuring it, research car insurance groups. Those in the lowest groups are almost always cheaper to ensure than those in higher groups. Great choices include the Volkswagen Polo and the Toyota Yaris.