Car insurance guide

Gain a better understand of the car insurance market

The state of the car insurance industry

It’s not cheap to run a car – tax, fuel and maintenance all add up, not to mention the cost of car insurance. So motorists will no doubt be pleased to learn that after years of rising prices car insurance premiums have started to come down in recent times according to the MoneySupermarket Motor Monitor.

Of course, the falls do not yet make up for the steep hikes in premium rates over the past few years. Make no mistake, car insurance will still take a big bite out of your budget, especially if you have more than one vehicle. It is therefore important to understand a little about the car insurance market, as well as the different policies on offer, to make sure that you buy the right policy cover at the right price.

Legal requirement

Don’t be tempted to drive without car insurance as it’s against the law. In a bid to crack down on the number of uninsured vehicles on the road, the government introduced Continuous Insurance Enforcement in 2011. Basically, if you own a car, it must be taxed and insured, unless it has been declared off the road through a Statutory off Road Notice (SORN). Anyone who is caught flouting the rules will be issued with a fixed penalty notice and could eventually have their vehicle seized and destroyed.

Fraudulent claims

Motorists who drive without car insurance push up the price for everyone else. Official figures put the total cost at about £380 million a year, or £30 on top of every premium. Fraudulent claims add to the cost burden, pushing up the premiums of honest customers by about £50 a year. It is thought that 7% of car insurance claims in 2011 were fraudulent, up from 5% in 2010. Experts blame the increase mainly on the rise in the number of fraudulent whiplash claims.

The NHS can also claim some treatment costs from motorists and their insurers, which is ultimately reflected in higher premiums for all of us.
The government has recently announced its intention to ban referral fees in personal injury claims in an attempt to curb the “compensation culture”.
The ban comes into force in April 2013 and will stop insurance companies selling personal injury details to lawyers. The insurance industry has also established the Insurance Fraud Register, a single industry-wide database that carries records of all known insurance fraudsters.

Risk factors

Insurance is all about risk, so the riskier you are, the more expensive the cover. Insurers look at a number of factors before they quote a premium for car insurance cover, but your age is one of the key indicators of risk. Basically, older motorists have fewer accidents than younger drivers. In 2010, for example, of the 6,506 people who were killed or seriously injured on Britain’s roads, 26% were in their teens or early twenties.

Men are also considered to be a more risky gender than females as they are actually more likely to make an expensive claim. Females are more likely to make a claim in general, but these tend to be for lower speed incidents which require less repair work to be undertaken. It has therefore traditionally been the case that womens car insurance has been cheaper than for male motorists. However, the ECJ gender ruling means that from the 21st December 2012, insurers have no longer been permitted to discriminate on the grounds of gender when calculating premiums.

Some occupations and postcodes are riskier than others. The type of car you drive can also affect your premium. Insurers put cars into 50 car insurance groups, with vehicles in the highest groups attracting the highest premiums. A car’s insurance group depends on a number of factors, including price, performance, the cost of parts and the typical repair times. And as you might expect, a high performance car is costlier to insure than a family runabout.

Rewarding safe drivers

Insurers reward careful drivers and one of the best ways to cut the cost of motor insurance is to build up no claims discount. In some cases, you can knock 75% off your premium if you manage five consecutive years without a claim. You can usually transfer your no-claims discount from one insurer to another so you don’t need to stick with your existing firm at renewal to benefit.

You can also pay a little extra to protect the discount, in which case you are allowed to make a certain number of claims within a year without jeopardizing your bonus. However, your basic premium could still increase at renewal.
Motorists with a poor driving record often find it hard to arrange affordable car insurance. So if you have numerous driving convictions, you might need to contact a specialist insurer.

Types of car insurance

There are three different levels of cover. Third party car insurance is the most basic and the minimum legal requirement. It essentially pays for any damage sustained by a third party, their vehicle or their property if you are at fault. So, if you reverse into your neighbour’s car for example, the policy would cover the damage to their car. It would not, however, pay for any repairs to your own vehicle.

Third party fire and theft car insurance is one step up and includes cover in case your car is stolen or damaged by fire. Then there is comprehensive insurance that covers all of the above, plus you and your car for any injury or damage, even if it was your fault.

Most drivers opt for fully comprehensive car insurance because the extra cover gives them additional peace of mind. But if your car is not worth very much, third party cover might be adequate. Younger drivers also often opt for third party to save money. It’s always worth checking the premiums for all levels of cover, though, because you may find that a fully comprehensive policy doesn’t actually cost you much more – in some instances it might even be cheaper! You can find out more about the different levels of cover on our car insurance policy types page.

Optional extras

When comparing car insurance quotes it’s important to look at what you’re covered for as well as the price as insurers differ in what they include in their standard cover.

While one insurer might include windscreen cover as standard, another might exclude it. Other common exclusions include legal expenses, a courtesy car and breakdown cover. You’ll be able to buy these as add-ons to your policy.

However, be careful as the cost of optional extras can soon mount up so it’s important to make sure that you don’t pay for something that you don’t need. And remember that you should always compare prices for add-ons such as breakdown cover in case a stand alone policy is cheaper.

A separate breakdown cover policy might also give you a wider choice of cover options. The same goes for European car insurance, as it may be cheaper to purchase a separate short term policy which covers overseas travel rather than paying for it as an add on to a conventional policy.

Specialist policies

Mainstream insurers cover a wide range of motorists and vehicles, but if you or your car is particularly unusual, you might need a specialist car insurance policy.

There are specialist classic car insurance providers out there for instance that offer policies aimed at these particular types of vehicle. MoneySupermarket.com compares deals available through these specialist providers along with conventional car insurance companies in order to find you the right deal at the most competitive price.

MoneySupermarket.com will also seek out policies if it is you who has the specialist requirements. Perhaps you have yet to pass your test and require a learner driver car insurance policy. If this is the case, then MoneySupermarket will retrieve all the policies which are relevant to you given your requirements.

Be honest with your motor insurance provider

Motorists often like to customise their cars, but it is important to tell your insurance company as any modification could affect your premium, even if it’s a minor tweak, such as a spoiler or tinted windows. If you keep quiet about any changes to your vehicle and subsequently made a claim, the insurer could refuse to pay up. So honesty is always the best policy because otherwise you will effectively be committing insurance fraud.

Not all modified car insurance policies will necessarily be more expensive however; with security enhancing modifications such as the addition of alarms and/or immobilisers making it less likely that your car will be stolen and hence reducing the chances of you making a claim.

Watch out, too, if you drive your car for business, even if you only use it to visit clients, as a standard policy will usually only cover social, domestic and pleasure use, unless you specify otherwise. You can compare dedicated business car insurance policies on our comparison site.

Multi-car policies

Many households these days own more than one vehicle, in which case it might be worth considering a multi car insurance policy. You can usually insure up to five vehicles, and it cuts down on paperwork as well as premiums. People who insure multiple vehicles with the same company can often shave 10% or more off their premiums.

Policy excess

All car insurance policies carry an excess, which is the amount you have to pay towards any claims. The excess usually comes in two parts: the compulsory excess, and the voluntary excess.

A typical compulsory excess might be £200, so if you make a claim for £500, the insurer would pay only £300. It’s worth bearing the excess in mind before you put in a claim. If the damage is not serious, it might be better to pay the full cost out of your own pocket in order to protect your no claims bonus. Check the small print of the policy though because the excess does not always apply to minor claims, such as windscreen repair.

You choose the level of your voluntary excess, usually starting at £50 or £100. If you are prepared to agree to a higher voluntary excess, you might be able to negotiate a lower premium. But be careful! Remember that you must pay the excess in the event of a claim, so it should be within your budget.

You can purchase a separate excess insurance policy through our website, which ensures that you won’t be forced to face this unexpected expense. But do bear in mind that you will need to pay for excess insurance alongside your conventional car insurance policy.

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