Insurance is a legal requirement in the UK. If you have an accident without it, you won’t be very popular with the Police or other road users, and you could end up having your car impounded or crushed.
If you’re going to buy a car you’ll have to immerse yourself in the occasionally confusing world of insurance.
It doesn’t need to be smoke and mirrors, however, and that’s why we’re here. Don’t know your TPFT from your excess? Read on!
There are three types of car insurance in the UK
Known as third-party insurance or TPO (third-party only), this is the most basic form of insurance that covers third parties, and means you’ll have to pay for any damage to your car yourself – if you caused the accident. Your passengers will be covered in the event of any crash, as will other road users. If someone else drives into you (and you are not at fault), you simply claim against their insurance policy to repair your car.
It’s often used by owners of cheap cars where the cost of the car or repair will outweigh the cost of more comprehensive insurance – it’s the bare minimum of insurance you can use on British roads.
Younger drivers may be tempted to use third-party-only insurance because it’s often the cheapest option, but it’s probably a false economy in the event of an accident. It won’t cover you if your car is stolen or burnt – for that you’ll need to upgrade to…
Third party, fire and theft
This option, usually known as TPFT, gives you the same level of cover as third-party insurance but will pay out if your vehicle is stolen and/or destroyed or damaged by fire.
It’s a middle ground between TPO and fully comprehensive insurance, and usually priced accordingly. Many used-car owners will happily use TPFT cover, especially if they’re happy to pay the cost of any accident-related repairs to their own cars.
This is usually most expensive insurance cover, but for a reason. If you are insured on a fully comprehensive policy (often known as fully comp), your insurer will pay for damage to your car, even if an accident was your fault. Your third-party liabilities (such as injury or damage to property) are also covered.
It’s usually the best option if you’re buying a new car, because it guarantees your expensive investment will be protected come what may – naturally, fully comp also includes fire and theft cover.
If you buy your car on finance then it’s usually worth taking out comprehensive insurance so you don’t end up with a car you can’t afford to repair with finance payments left to stump up for.
What’s an excess?
Think of an excess as a fee you have to pay to claim on your insurance policy in the case of an accident where you’re at fault. If you write-off your £20,000 car, then the insurance company will pay you the cost it agrees your car is worth (hopefully as close to £20,000 as possible!), minus your excess.
If your excess is £500, then they’d pay you £19,500. The excess your insurance company decides to charge will be laid out at the start of the policy and depends on your level of risk – how old you are, previous motoring convictions and so on. This bit is called the compulsory excess.
You can opt to increase your excess (called adding a voluntary excess), which will usually lower the cost of your insurance (known as the premium). It’s a gamble though – if you need to claim you’ll be more out of pocket, but your insurance was cheaper in the first place because you added a higher voluntary excess.
Check the small print for each policy before you sign up – there are sometimes different excesses for different types of damage.
Also be aware that in a non-fault accident you may still have to pay your excess – but it should be reclaimed from the at-fault party’s insurer by your insurance company. If not, you may have to pursue it yourself.
Several companies do offer excess insurance to help you claim back the cost of your excess in the case of an accident. It is, effectively, insuring your insurance, but considering how high some excesses are it could be worth it.
What is a no-claims bonus?
A no-claims bonus (called NCB or no-claims discount, NCD) is simply a factor many insurance companies take into account when offering you an insurance product. The more years you go without claiming on a car insurance policy, the cheaper your policy is likely to be. It’s not a right – it’s very much one of the rare niceties that can help you reduce the cost of driving.
If you make a claim you’ll find your NCB is reduced by two years. Again, check the smallprint because although you may think you have eight years NCD, some insurers may consider five years the maximum, deduct two from this and leave you with three years!