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2021 Guide to Car Insurance


Today we’ll guide you through different types of car insurance. It pays to know about the most popular categories so you can save money when picking the right insurance for your needs. First, we will cover comprehensive insurance and then go on to explain supplementary types. Additionally, we’ll answer your most frequently asked questions. So let’s get right into it!

How does car insurance work?

Car insurance provides financial protection in the event your car is stolen, vandalised, catches on fire or if you are involved in an accident.

In the UK, it is a legal requirement to have car insurance that protects you against any damage you cause to other road users, the public or their property, known as third parties.

However, many people choose to opt for more comprehensive insurance, which also protects your vehicle.

When it comes to making an insurance claim, you only claim against your policy if nobody else is involved or the accident is your fault. If another driver is responsible for an accident, you would claim against their insurance.

So now, let’s jump straight into the different types of car insurance available.

Types of car insurance

There are three main types of car insurance; fully comprehensive, third party and third party fire and theft.

The level of cover you will get will depend on the type of car insurance you choose and your insurance provider. For example, some policies include additional protection like motor legal costs, cover for personal belongings, medical expenses and breakdown cover, while others offer these benefits as optional extras.

Did you know that car insurance has become cheaper by £21 when comparing the prices between 2017 and 2020? On average, car insurance in Britain costs £460.

Fully comprehensive insurance

If you want to learn more about fully comprehensive insurance, it’s all in the name. This insurance covers all the damage to your car, against a third party, as well as fire & theft damage.

Surprisingly, fully comprehensive insurance is cheaper than third party and TPFT which was found by Money Supermarket research. Younger drivers are more likely to take out third-party insurance and that correlated to the falling price of fully comprehensive cover.

However, if you want to have insurance on another car, then you will need to be added as a named driver as insurance doesn’t automatically apply to all the vehicles you own.

Third party insurance

This type of insurance is the most popular with the majority of Brits choosing it over fully comprehensive and third party fire and theft (TPFT) from 2017 and well into the second quarter of 2020. It’s the most common for a reason, as that’s the minimum requirement if you want to drive legally.

Third-party fire and theft (TPFT)

TPFT insurance is pretty straightforward – it insures other cars just like the usual third party insurance, but also protects your vehicle against fire damage and theft. This type of insurance can be pricey though – so make sure to compare the prices before purchasing.

Other types of car insurance

As well as the three main types of car insurance, there are other types of insurance available to suit specific circumstances. This includes the likes of short-term car insurance cover, company insurance cover and specialist student insurance. Below we take a look at a few examples in closer detail.

Monthly car insurance

As the name suggests, monthly car insurance allows you to access insurance for 28 days.

It is the ideal solution when you may be borrowing a car from a family member or friend for a short period, like a holiday or when back from university for summer. There is no long term commitment, so it is a flexible and cost-effective way to get short-term cover.

Company car insurance

Company car insurance is essential for anyone who drives for work-related purposes. Standard car insurance usually only covers you for social drives and commuting to one place of work.

Therefore, if you need to drive to multiple locations as part of your role, you need company car insurance. If you own or lease the car you drive, it is your responsibility to insure your vehicle. However, if your employer owns or leases the car, they are responsible for ensuring it is insured.

With company car insurance, there are a few different options:

  • Cover just for you
  • Cover for you and other drivers
  • Commercial travelling, usually only necessary if driving is an integral part of your job, e.g. a sales rep travelling to multiple locations

Student car insurance

Student car insurance is designed to provide students with safe and affordable motoring.

Car insurance can be expensive for younger drivers as they lack experience, so are seen as being at higher risk. Car insurance for students aims to make it more affordable while offering additional extras to suit the student lifestyle.

It is not necessary to have specialist student car insurance as long as you have car insurance. For example, if you have an insurance policy in place before you leave for university, you should make your provider aware of the change of address and occupation beforehand.

Hourly car insurance

There are occasions in life when you need short-term car insurance quickly. In these cases, it is possible to get hourly car insurance to cover you for as little as one hour.

Many companies offering hourly car insurance provide comprehensive insurance, so you get the same cover as standard car insurance. It also means you can be fully confident you are legally covered to drive.

You may need hourly car insurance when driving a new car off the forecourt before you have your new insurance policy in place. 

Specialist insurance

In addition, to these main three types of insurance, there’s a variety of other sorts that are available, such as:

Gap

Gap insurance covers the difference between the car’s original and depreciation price in case of an accident where it’s written off or stolen. It mostly applies to new vehicles, as they depreciate the quickest, but used cars qualify too.

Fleet/multi car

If you need to insure more than one car at the time, then multi-car insurance is excellent. It can take a lot of hassle out of insuring every vehicle individually.

Young driver’s

Some lenders specialize in young driver’s insurance and offer schemes like black box insurance, also known as pay-as-you-go or learners’ insurance.

Commercial

Commercial insurance covers business vehicles. Personal insurance is not sufficient if you get in the accident while travelling for business reasons like driving in between client’s locations or to and from work. With commercial insurance any goods you may be carrying as part of your job are often also covered against damage.

Top 5 tips to get cheaper insurance

  1. Pick a vehicle that’s more affordable to insure like smaller city cars. Cars with large internal combustion engines (ICE) emit lots of CO2, are also harmful to the environment and typically have more power, so the insurance tends to be higher too.
  2. Paying every year is cheaper than monthly. Interest rates inflate the price if paying monthly.
  3. Don’t auto-renew. It pays to shop around for the best deals. Sometimes, insurers offer cheaper rates and then charge a higher price after some time if your car circumstances change.
  4. Watch your driving. The way you drive can influence your insurance price, so if you’re a careful driver with no accidents on the record, the insurance costs will be reasonable.
  5. Minimize the risk. If your car is in a garage versus outside, then the premium will be lower. You can also make the car safer with engine immobilizer, alarm and tracker.

Factors that affect car insurance price

There are many factors that insurers need to take into consideration when processing your application. We’ll go through the most common and significant ones as there are almost countless aspects.

Age

Unfortunately, younger drivers (18-20) pay the highest insurance costs that average £1000+ a year. It is thought that because of less experience there’s a higher likelihood of an accident. On the contrary, insurance costs go down when you hit 30 and get cheaper each decade as you get older.

Occupation

Your job title is also a significant factor that influences insurers’ decisions. Occupations are divided into low and high risk. For example, if you’re on the road more often or carry additional equipment that means insurance premiums are higher.

A simple adjustment to your job title means that you can save up quite a bit of money.

Address

The postcode also carries a lot of weight. If there’s a lot of crime in the area, then naturally it will be more expensive to insure due to the safety risk. Cities naturally have higher crime rates compared to rural, less built-up areas so the costs are lower.

Car type

More powerful cars will have higher rates as they’re more difficult to control. The size of the engine is also considered. Smaller engines don’t have as much power and are therefore less likely to get in an accident.

Driving history & no claims

The way you drive will also influence the final quote you’re given. It can be a good idea to take out black box insurance to make it cheaper if you’re younger and need to pay high insurance costs. It records your driving and sends that information directly to insurers. As a result, if you’re a safe driver, you can save a lot of money.

Additionally, if you didn’t claim car insurance, then after a year or so, you’re eligible for a no claims discount. Also, if you’ve been in an accident that’s not your fault, then the no claims discount (NCD) should remain on your file.  

Your car insurance questions answered

Can car insurance be cancelled?

It can be cancelled, but bear in mind that it typically lasts for 12 months so if you cancel after a 14-day cooling-down period, expect administration and cancellation charges.

Additionally, it depends whether you paid for insurance a year in advance or each month. It will determine how much you’ll need to pay.

The easiest way is to contact the insurer online and explained that you want to cancel the insurance.

Can car insurance start immediately?

Typically, car insurance starts straight away as long as you’ve paid for it. The insurer will then issue a policy number and your insurance is then valid.

Can I get car insurance for a week?

Weekly insurance is flexible and covers those awkward situations where you want to move a house or drive a relative’s car.

What is the best car insurance cover?

It depends on your needs, but the one that offers the most coverage is comprehensive insurance. It’s also cheaper than before so you won’t need to pay excessively.

When is it best to renew car insurance?

The best time to renew the car insurance policy is between three weeks to a month.

Coronavirus and car insurance – FAQ

Due to the current situation, many people have questions about how coronavirus may affect their car insurance. Here we aim to answer some of the most FAQs:

Can I get a reduction in my car insurance as I haven’t used my car much?

As a gesture of goodwill, many insurance providers are offering money-back or a reduction to premiums to people who have not been using their car as frequently as expected. However, this is entirely at the discretion of car insurance providers.

To find out if your insurer is willing to offer any reductions to your payments, get in touch with them.

I’m not using my car at the moment, can I save money on car insurance if I declare it off-road?

If the coronavirus pandemic means you are not using your car, you might want to consider taking it off the road to save some money.

By declaring your vehicle as SORN (statutory off-road notification) you no longer need to pay road tax or insurance. Once a car is SORN, you cannot drive it or even park your vehicle on a public road.

While this can save you money on car insurance costs, bear in mind you have no financial protection if something happens to your car while parked up off the road.

You can apply for a statutory off-road notification (SORN) through the DVLA website. When you do need to use your car again, you must cancel the SORN and re-insure it before you drive it.

I can’t pay my insurance premiums. Is there help available?

The Financial Conduct Authority (FCA) encourages car insurance providers to help those struggling to pay for their car insurance during this unprecedented situation. To help out, insurance companies may offer to reassess your level of risk (if you are driving less), review the level of cover you need or waive cancellation fees.

If you need insurance but are struggling to afford it because of the situation, you can ask to defer your payments for between one to three months. The best thing to do is to take action by contacting your insurance provider to make them aware of your situation as soon as possible.