Unless you declare your vehicle off the road (with a Statutory Off-Road Notification, also known as a SORN), you car must be insured, even if it's just sitting on the drive. Without insurance you risk a fine or prosecution, or even losing your car. And if you have an accident, not having insurance will result in serious legal consequences and a big financial blow.

The law says that drivers must have insurance against third party injury or damage claims. This means if you were to injure someone else or damage their property, you would have insurance to cover their claim. The law also says that the insurer must provide a certificate of motor insurance as evidence that you have insurance.

Types of motor insurance cover

Third party - Gives you the minimum cover you need by law - third party liability risks. It means that if you cause an accident, the cost of damage to other vehicles is covered. Policies of this type are very rarely issued as most people combine it with fire and theft cover.

Third party fire and theft - In addition to the protection given by third party, this covers loss or damage to your own car as a result of fire, theft or attempted theft.

Fully Comprehensive - The widest form of cover available, although it cannot protect against every conceivable risk. The main benefit is that it will pay for repairs or the replacement of your car if it's damaged or stolen. Fully comprehensive policies normally include personal accident insurance, providing payments for death and specified serious injuries such as the loss of a limb or sight.

Types of insurance policies

Until recently, a car insurance policy was issued on an annual basis, for a pre-determined cost. Now, newer forms of insurance geared towards young drivers are available as well.

Traditional annual policies

Car insurance is issued on an annual basis, and paid for in one lump sum, or in monthly instalments (often with a small additional charge). The cost of premiums varies widely, depending on the risk involved. It is calculated by looking at factors such as:

Drivers

Information about drivers affects the premium significantly. Important factors include age, driving experience, occupation, accident record and history of convictions.

Young drivers - particularly those under 25 - pay a higher premium because statistics show they're more likely to be involved in accidents.

Young men make more insurance claims than young women, so some insurers charge women lower premiums than men of the same age. However, new legislation means this will change come December 2012 when women will lose their gender advantage and be subjected to the same premium prices as young men.

If you have previous convictions, especially for a motoring offence, you have to declare it when you apply for insurance cover. It's important that you're upfront with the insurance company before you sign up for a policy. If you're not, they could turn down your claim or declare your insurance void. This means you'd be driving illegally.

Type of car

Insurers will consider factors such as the cost of body parts, how easily the car can be repaired, its value when new, its top speed, its acceleration and how difficult it is to steal.

Sports and high performance cars are more expensive to insure because statistics show that they are involved in more accidents and also that repairs are more costly than with other types of cars.

The vehicle's address

Areas with a high density of traffic are more risky than a remote country area. Some areas have a significantly higher than average record of car theft or vandalism. Insurers therefore divide the country up into categories of area according to their experience of the risks involved. Sometimes, theft is not covered where a car is left overnight in the open.

No claims discount

Motorists who go for a year or more without making an insurance claim qualify for a no claims discount off their basic premium. Most insurers offer a significant reduction after one claim-free year. This discount rises, year by year, to as much as 65% after four or five years.

If you claim on your policy you may lose some, or all, of the discount. It doesn't matter whose fault the accident is as the discount relates to the fact you haven't made a claim, not to the fact that you haven't had an accident that's been your fault.

Telematics insurance policies

Telematics insurance - sometimes known as 'black box' insurance - is a relatively new product which sees a smartphone-sized device installed under a car's dashboard. Using GPS technology, the device is able to record driving data like speed, routes, braking force and so on. This information is then transmitted to the insurer, which will adjust the monthly insurance cost accordingly, rewarding motorists for safe driving.

This kind of insurance is particularly suited to young drivers since it does not work on generalised assumptions of age and car type, but instead on actual driving ability. This can help to bring down the high insurance costs young motorists face. Some insurers have specific clauses within their telematics policies, though, such as restrictions on the time of day you can drive, or limiting the number of miles you can do.

How much do you use your car?

What you use your vehicle for will also have an effect on your policy. Most insurers recognise three common classes:

Social, domestic and pleasure. This is the standard cover that most people buy if they don't use their car for their business. It also covers you for trips to and from work.

Social, domestic, pleasure and business. This would also cover you if you were travelling between different offices or workplace locations.

Commercial travelling. This would give you social, domestic, pleasure and business cover, but would also insure you if you are a sales representative or are delivering goods.

Excess

The excess is the first part of the claim that you have to pay. The excess level can vary, but choosing a low excess usually means a more expensive premium. One way to reduce your premium (regardless of the type of policy you choose) is to accept a higher excess.

Compulsory excesses are different. These are often imposed, for example, on learner drivers or those who are young, inexperienced or have a poor claims record.

Motoring Abroad

All private motor policies issued in the UK extend automatically for use in all EU countries, and certain other European countries. The cover, however, is limited to third party liability.

To get a full level of UK cover, always tell your insurance company before departure so they can arrange to extend cover during your visit, although be prepared to pay extra for this.

Updated: 02/08/2012