10 things you need to know about car insurance

Red retro carCar insurance prices have rocketed in recent years, making it more important than ever to ensure you get the best price possible. But as well as paying the right price, you also need to make sure you have the right amount of cover.

Here are 10 things you should know about car insurance to help you find the best deal... 

1. Car insurance is a legal requirement

Car insurance isn't optional. In fact, a clampdown in 2011 means that not only is it illegal to drive without insurance, your car must be insured at all times.

Under Continuous Insurance Enforcement (CIE), which took effect in June 2011, unless you have completed a Statutory Off Road Notification (SORN) and registered your vehicle as being off the road with the DVLA it must be insured. Failure to have insurance could result in a fine of up to £1,000.

The new rules were designed to help tackle the rising problem of uninsured drivers, but the stringency of CIE means drivers who let their insurance lapse because they are away perhaps, or who only drive their cars for part of the year, could also be caught out.

2. 'Fully comprehensive cover' won't necessarily be the most expensive

There are three levels of car insurance:

  • Third Party is the most basic and will cover damage caused by you to another vehicle or property
  • Third Party, Fire and Theft is the next level up. In addition to the cover given by a Third Party policy, your insurance will also pay out if your car is stolen or damaged by fire.
  • Fully comprehensive insurance offers the most thorough protection because damage to your own car is covered as well as damage to a third party.

You might expect Third Party insurance to be the cheapest option given it offers a lower level of protection but this isn't necessarily the case.

Premiums for Third Party cover have increased sharply in recent years because it is popular with young drivers and they are more likely to be involved in an accident and make a claim than more experienced drivers. Consequently, the cost of Third Party insurance has gone up.

So even if you are willing to accept a lower level of cover it is still worth checking the cost of Third Party, Fire and Theft, and Fully Comprehensive as the cost may not be much different.

3. Some 'fully comp' policies are more comprehensive than others

It's really important to look beyond the price when comparing car insurance policies. Even with a fully comprehensive policy, what is included as standard varies so make sure you are comparing like-with-like.

Common exclusions to watch out for include windscreen damage, a courtesy car, breakdown cover and legal cover. It may be that you don't need these elements of cover, but if you do a policy that includes a courtesy car as standard, for example, could be cheaper than buying an add-on to a policy that doesn't.

4. Don't automatically renew with your existing insurer

If you have been with the same insurer for a number of years, chances are you are probably paying more than you need for your car insurance. Insurers know most people will stay put rather than changing providers every year.

Shopping around for insurance isn't most people's idea of fun but the money that can be saved from taking a bit of time to find the best deal makes it well worth doing. And the internet has made it much less of a chore than it used to be.

If you use a comparison site you can compare prices from over 100 insurers in one fell swoop. Independent research found that people who use MoneySupermarket.com save an average of £375 on their car insurance.

5. A high excess could prove a false economy

The excess is the amount you have to pay towards a claim. There are two types of excess: the compulsory excess, which is set by the insurer, and a voluntary excess which you choose. When comparing premiums the first thing to make sure you do is to look at the total excess.

Opting for a higher excess can help reduce the overall premium but it could prove a false economy in the event of a claim because you will have to pay more of the repair cost yourself. You need to look at how much the premium is lowered by and weigh up whether you think it's worth it. For example, opting for a £250 excess may bring the premium by say £50, but that means it will cost you £200 more in total if you have to claim on the policy.

If finding that amount of money would be a struggle, it might be better paying the higher premium in return for the lower excess.

6. Your premium can still rise even if you protect your No Claims Discount

Once you have built up a few years' no claims discount (NCD) you will be able to protect it. If you opt to do so and then have to make a claim you won't lose any of your discount. So if you've built up a 50% discount, you will continue to benefit from a 50% reduction in the event of a claim. However, this does not mean your premium won't rise.

The underlying price will go up when you come to renew your insurance if you make a claim. Even after the 50% discount is applied, your premium will be higher than the year before.

7. Why you must notify your insurer of a change in circumstances

It's really important to let your insurer know if your circumstances change. This may seem obvious if you move house, but you should also notify them if your job changes or you stop working to go on maternity leave.

The reason for this is that insurers price for risk, so not only does your address matter but where and when you drive is also important.

If you don't keep your insurer up-to-date you risk invalidating your policy, which could result in any claim you make being declined.

8. It's cheaper to pay upfront

Most insurers charge more for you to pay for your insurance monthly rather than annually, so it is cheaper to pay a lump sum for the year if you can afford it.

Paying monthly is more expensive because insurers often treat monthly payments as a loan from them to you, and will therefore add on an 'interest charge' which can be as high as 25% or 30%.

9. 'Telematics' policies can cut costs

Telematics-based policies allow insurers to calculate premiums that reflect an individual's own driving behaviour, as opposed to being based mainly on your risk profile, which will incorporate claims statistics for other drivers of your age.

Your driving is monitored via a 'black box' data recorder fitted to your car by the insurance provider.

Some telematics policies reward good driving behaviour with regular refunds throughout the year, so you'll pay upfront as usual based on your risk profile but then get money back if you can demonstrate that you are a safe driver. Others simply provide a bigger discount when the policy is renewed.

The driver can usually monitor their performance via a downloadable app.

Telematics-based policies are often marketed towards young drivers but most insurers provide them for drivers of almost any age.

If you're trying to lower a young person's premium, another option is to consider adding an older named driver, such as a parent or relative, to a policy.

10. 'Fronting' is illegal

While adding another driver is a perfectly legitimate way to reduce costs, it is illegal to falsely declare that they are the main driver of the vehicle.


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Last updated: 09-Apr-2014 at 11:07 AM