Car insurance: Everything you need to know

Learn about the various insurance types, how premiums are calculated and what you can do to minimise how much you pay.

In the UK, car insurance is mandatory for any car that has not been officially registered as off the road via a Statutory Off-Road Notification (SORN) from the DVLA.

This blanket approach to automotive insurance is covered by the UK's Continuous Insurance Enforcement (CIE) rules, created to tackle the problem of uninsured drivers.

The majority of car insurance policies fall into three categories:

This covers costs of third party vehicles/property (and their drivers and passengers) arising from a collision for which you were deemed responsible. This is usually the most cost-effective insurance type, but does not cover you for costs associated with damage to your own vehicle or the injury or death of anyone inside.

This insurance type is the same as Third Party, but covers your own vehicle against fire, damage and theft.

This policy type covers damage to your own vehicle resulting from a collision, while offering all the benefits of Third Party, Fire and Theft.

Insurers decide how likely you are to be involved in a crash, and calculate the premium accordingly.

They look at:

Because drivers aged 17-25 are deemed more likely to be involved in a crash, they pay higher premiums. Older drivers are deemed less risky so may be offered lower premiums, depending on other factors.

Those employed to drive regularly, who transport expensive equipment, or who work in higher risk roles are considered more likely to have a crash – and therefore pay more.

Various factors are looked at, including value, desirability, power and any modifications.

If you've claimed in the last five years or have points on your licence you may well be charged a higher premium. Even if you were deemed not-at-fault in any collision, the price you pay may rise.

In any event, you will have to pay the mandatory excess – usually of £50 or £100. But the larger the voluntary excess (the sum added to the mandatory excess), the lower your premium – because you will foot a larger part of any bill. Small incidents resulting in low-value damage are thus not worth claiming for, obviously benefitting the insurer. If you agree to pay a very high voluntary excess, you will effectively be insuring yourself – notwithstanding a large claim (e.g. the car being written off). Conversely, if you select no voluntary excess the insurer will have to pay the entire bill, minus the mandatory excess.

And of course, which of the three basic insurance types you choose will also impact your premium.

This is a person named on the insurance document who occasionally drives your car. It might be possible to reduce your premium if you add an older, more experienced driver to your policy as a named driver.

However, older, more experienced individuals should not be named as the main driver when you are in fact driving the car most often: this tactic is called 'fronting' and is illegal. Offenders could find their cover is invalid and be prosecuted for driving without insurance.

This involves having a device known as a ‘black box’ fitted to your vehicle. This monitors how well you drive. Careful drivers may save substantial amounts on their cover. This option is especially popular among younger drivers who often face large premiums due to their age.

If you have two or more cars in your household, you may well save money by placing them all in one multi-car policy, with all vehicles registered at the same address.

If you will be driving a vehicle temporarily, for between 1 and 28 days, there are a number of short-term car insurance policies available.

From opting for a small voluntary excess to selecting a ‘telematics’ policy, there are various ways to minimise your annual premium. You can save even more by shopping around the many insurers available, rather than simply re-insuring with your existing provider.

• Following any collision, contact your insurer as soon possible to make a claim.
• Complete the claim form and return it with any evidence – as quickly as possible.
• Keep copies of the claim form and any paperwork.
• Do not arrange any repairs until you have been told to do so by the insurer. In most cases they will give you a list of approved garages where the work can be undertaken.