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 the claim. The law also says that the insurer must provide a certificate of motor insurance as evidence that you have insurance.

Different types of motor policy

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.

Calculation of premiums

The cost of premiums varies widely, depending on the risk involved. It is calculated by looking at the following categories:

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.

Drivers

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

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.

Why do young drivers pay more?

Young drivers - particularly those under 25 - pay a higher premium because statistics show they're more likely to be involved in accidents. Young men have more insurance claims than young women, so some insurers charge women lower premiums than men of the same age.

It's possible to cut the cost of your insurance if you opt for a restricted driving policy. That means you don't drive between the hours of (typically) 11 pm and 6 am.

It might be tempting to use your parents' car insurance and to be a named driver on their policy. The problem is that this is illegal and insurers take rather a dim view of those who do it.

Use

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.

District

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 reduction of around 25% after one claim-free year. This discount rises, year by year, to 60% or 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.

The excess

The excess is the first part of the claim that you have to pay. The excess level can vary, but one way to reduce the cost of your premiums is to take 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 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.

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Updated: 17/10/2011