Car Insurance Explained: Types of Cover and Costs

The three levels of cover

Understanding your policy

• Excess: the amount you pay towards any claim. There is often a compulsory excessHome Insurance Explained: Buildings and Contents CoverHow UK home insurance works: buildings versus contents cover, rebuild cost, excess, common exclusions, Flood Re, how to compare policies and how to claim.Read more → set by the insurer plus a voluntary one you choose.
• No-claims discount (NCD): a discount you earn for each claim-free year. It can be significant after several years. Some people pay extra to protect it, but protection usually only means your discount does not fall after a limited number of claims; your premium may still rise.
• Use class: social, domestic and pleasure, commuting, or business use. The wrong class can invalidate a claim.
• Named drivers: people allowed to drive your car. Adding an experienced driver can sometimes lower the price but "fronting", where you pretend a young driver is a named driver while they are the main driver, is illegal.
• Mileage: estimated annual miles. Underestimating can cause problems with a claim.
• Policy limits: for example, the cost of a courtesy car, windscreen repairs or use of the car abroad.

What affects the price

Insurers look at many factors, including:

• Your age and driving experience
• Your postcode and where the car is kept
• Your job
• The car's make, model, value, age and engine size
• Your claims and conviction history
• Your annual mileage and how you use the car
• Modifications to the vehicle
• Security features, such as an alarm or a garage
• The excess you choose
• How you pay, since monthly payments often carry interest

How to compare quotes

1. Gather your details. Registration number, licence details, claims history, NCDNo-claims discountA no-claims discount reduces your insurance premium for each year you go without making a claim.Read more → proof and annual mileage.
2. Use several comparison sites and check direct insurers that do not appear on them.
3. Compare the cover as well as the price. Look at the excess, courtesy car, windscreen cover, legal protection and any exclusions.
4. Check the insurer's reputation for claims handling. Verify they are authorised by the Financial Conduct Authority.
5. Answer all questions honestly. Giving wrong answers can invalidate your policy and lead to a refused claim or criminal liability. This includes things like where the car is parked, who drives it and how you use it.
6. Check the add-ons. Breakdown cover, legal expenses and personal injury cover are often cheaper bought separately, but some people prefer to bundle them.

Cutting the cost

• Shop around at least 3 to 4 weeks before renewal. Do not auto-renew without checking.
• Pay annually if possible
• Increase your voluntary excessExcessAn excess is the amount you pay towards each insurance claim before the insurer pays the rest.Read more → to a level you could pay
• Park in a garage or off-road
• Consider telematics (black box) policies if you are a young or new driver, since they track your driving and may lower prices for safe driving, but they involve monitoring
• Limit your annual mileage if you can do so honestly
• Build up your no-claims discount
• Consider a car in a lower insurance group

Other things you need to know

• MOT, tax and insurance: all must be in place before you drive. The government's Motor Insurance Database (MID) records insured vehicles. If your car is uninsured, you can be fined automatically.
• Driving other cars: this is not always covered. Check your policy.
• Driving abroad: most UK policies include a minimum level of cover in Europe, though you may need to extend it. Check your policy and carry the documents you need.
• SORN: if the car is off the road and uninsured, you must declare it as SORN (Statutory Off Road Notification).
• Uninsured drivers: if you are hit by an uninsured driver, the Motor Insurers' Bureau may help.

If you have an accident

1. Stop and check for injuries; call 999 if needed.
2. Exchange details with other drivers: names, addresses, registration numbers and insurance details.
3. Take photos and notes, and get witness details.
4. Report to the police if there are injuries or if you cannot get the other driver's details.
5. Tell your insurer promptly, even if you do not plan to claim.

Telematics and young drivers

New and young drivers pay the most because they have less experience. A telematics policy uses a box in the car or a phone app to record how you drive, such as speed, braking and the time of day. Safe driving can lead to lower renewal prices, but poor scores may raise them or end the policy, so read the terms first.