A comprehensive guide to car insurance and how to save on premiums

Using websites such as Gocompare.com  can help you save significant amounts of money on your premiums. However, to ensure you're getting a policy that's right for you, you'll need to understand how car insurance works. Here we take a closer look at the "ins" and "outs" of car insurance and how to save even more cash.

Why do you need car insurance?

Car insurance in the UK has always been a legal necessity but from June 20, 2011, the rules governing it changed. From this date on all drivers who own a vehicle can be prosecuted for not having car insurance - unless they specifically register their vehicle as being off the road.

This is because of the increasing number of uninsured drivers in the UK with statistics from the Department of Transport revealing that these motorists kill 160 people and injure 23,000 every year, while costing honest motorists an additional £500million in added premiums.

Driving with car insurance ensures that the costs of any driving related damages or injuries will be covered - so for example, if you crash into someone else's vehicle, then car insurance will pay for the other car to be repaired.

What levels of cover are available?

Broadly, there are three types of car insurance to choose from:

  • Third party only: Covers liability for injuries to others, damaged caused to their property and liability while towing a caravan or trailer.
  • Third party, fire and theft: As with third party cover; plus cover for your vehicle against theft, damage from an attempted theft and fire damage.
  • Comprehensive: Third party, fire and theft; plus cover for damage to your own vehicle subject to policy exclusions.

Comprehensive policies vary widely between providers with some insurers offering features as "standard", meaning they are automatically included in the policy; and others as "optional extras", meaning they are available for an additional premium. You should compare exactly what is covered by a policy before deciding on the right deal for you. Typical standard features include: windscreen cover, personal accident cover, medical expenses cover and accidental damage; while typical optional extras include: legal expenses cover, breakdown cover and a courtesy car.

So should you choose car insurance based on policy features alone?

While it makes sense to take out as much cover as you need to ensure you're suitably protected in case an accident occurs, there are other factors to consider when analysing car insurance policies, such as:

  • Exclusions: These are circumstances in which you will not be covered.
  • Excess: This is your contribution towards a claim and is usually divided into a ‘compulsory excess', an amount you have to pay which is set by the insurer; and a ‘voluntary excess', which is an additional amount on top of the compulsory excess that you agree to pay in case a claim is ever necessary.
  • No-claims bonus: Many insurers offer certain incentives such as the no-claims bonus, which could potentially reduce premiums by as much as 60 per cent after four or more years. Crucially, if you make a claim you will lose a percentage of your no-claims bonus unless the insurer can reclaim all its costs from the other party's insurance company.
  • Premiums: An obvious factor to consider is what you can afford to pay each year. Thankfully, there are a number of ways to bring premiums down.

How can you lower car insurance costs?

Car insurance premiums are based on risk - i.e. the more likely you are to make a claim, the higher your premiums will be. Insurers consider factors such as: your personal circumstances, your address, your annual mileage, your driving history and the vehicle you drive itself. As such, addressing these risk areas could potentially lower your premiums. Here are some tips:

  • Choose the right vehicle: The vehicle itself is key to your insurance costs. Vehicles are categorised into groups from 1-50 (previously 1-20) by the Association of British Insurers with cars in higher groups earning higher premiums. Use its database as a guide when buying a car so you get a rough idea of how expensive it will be to insure. As a general rule, newer cars with larger engines are the most expensive to insure because they have higher repair/replacement costs and are more likely to be driven at fast speeds. So look for older cars with smaller engines where possible.
  • Don't modify: Similarly, avoid modifying your car as this will add to its value and usually push car insurance premiums up.
  • Drive safely: Avoiding convictions and accidents can help you build up a no-claims bonus.
  • Invest in security: Consult your insurer about which security devices - such as alarms, immobilisers and trackers - it recommends to avoid vehicle theft, and you may earn a reduction on your premiums.
  • Limit your mileage: The fewer miles you drive, the less likely it is that an accident will occur so consider agreeing to a mileage cap.
  • Park safely: Ideally keep your vehicle in a locked garage overnight, away from thieves.
  • Raise the excess: Increasing your voluntary excess will usually lower premiums but keep it at a level you can afford.
  • Shop around: Make sure you're getting the most competitive premium available by using a comparison website to compare quotes.