Shopping for auto insurance can be a daunting task. There are minimum insurance requirements that you must meet by law, and the wide selection of products and providers makes the market competitive but confusing. Here we’ll discuss some of the basics of car insurance so you better understand how car insurance works, what types of car insurance you can buy, how rates are calculated, and more.
car insurance explained
There are three levels of car insurance available in the UK:
- third party only
- third parties, fire and theft
third party only (tpo) only covers injuries or damages to third parties. it does not cover theft or any damage to your own car, whether by fire, explosion, theft/attempted theft, or collision. as we discuss in the next section, tpo is the minimum level of coverage required by law.
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third party fire and theft (tpft) provides the third party coverage that a tpo policy offers, plus coverage for damage to or loss of your car due to fire and theft. tpft is the average level of car insurance cover in the uk. it will not provide any protection should your car be damaged in an accident.
As the name suggests, comprehensive auto insurance is the best auto insurance you can buy. It covers everything a tpft policy offers, plus any damage incurred in a collision caused by your car, even if the car is a total loss.
how car insurance works
In the most basic terms, car insurance works like this: the policyholder pays a premium to a car insurance provider, and in return, the car insurance provider will pay any valid claims up to the insurance limit (minus any excess, of course). if the policyholder makes premium payments, complies with the terms of the policy, and a claim meets the criteria, then a claim will be paid.
Each auto insurance policy is subject to a list of terms and conditions, and certain situations will be excluded from coverage. For example, auto insurance policies typically exclude claims for theft if the car is left unlocked.
According to nimblefins, some of the top-rated cheap auto insurance companies work with preferred repair shops to fix damaged cars. It is important to note that coverage may differ if you do not use an insurance provider’s preferred repair network to perform any covered repair work. For example, insurance limits (eg, for windshield repair) may be lower, or you may not get a free car if you opt for an out-of-network repair shop.
Is car insurance mandatory?
yes, the 1988 traffic law specifies that car insurance is mandatory if you use your car on public roads or places. Registered owners must insure a car with at least tpo insurance – this is the minimum level of car insurance required by law.
tpo insurance covers damages and injuries to third parties, but not to you or your car.
You are not required to purchase a higher level of coverage (for example, tpft or comprehensive). However, those who have a valuable car or who cannot easily repair or replace their car if it was stolen or damaged in a collision will want to consider purchasing a TPFT or Comprehensive policy. Although not required by law, these higher levels of coverage can provide valuable protection for your car and your personal finances.
There is one exception to compulsory car insurance: when a vehicle is declared “off the road” via a legal off road notification (sorn) with the driver and vehicle licensing agency (dvla ). in this case, the vehicle will not be able to circulate on public roads. a sorn car doesn’t need insurance, taxes or a mot. That said, some vehicle owners still choose to insure a private car to protect against theft, fire, or other damage.
how car insurance is calculated
Auto insurance is calculated based on two main considerations: the perceived risk of insuring a given car and driver, as well as the product and features quoted by an insurance provider.
To calculate perceived risk and generate a quote, an insurer uses an internal pricing model that takes into account many details about the car and driver, and the more risk there is in an application, the more expensive the quote will be. As part of this, insurance companies rely heavily on Thatcham Research, which administers the Association of British Insurers’ (ABI) group classification system. Every car sold in the UK is issued with an insurance group rating that indicates the relative risk to insurers.
The pricing models also incorporate many factors, such as the value and size of the vehicle’s engine, as well as the driver’s age, experience and claims history. For example, a more expensive car would cost more to repair or replace if you were in an accident, so insurance rates would generally be higher. And cars that are stolen more frequently can cost more to insure, since there’s a higher chance that an insurer will have to pay a theft claim.
Location can also lead to differences in insurance rates, as insurers factor in the risk of accidents and theft in different neighborhoods. rates can even vary from zip code to zip code, so you may pay a different rate if you just move down the street.
The second main consideration when calculating auto insurance quotes is the product being sold, that is, how much coverage a policy provides. There are two main factors at play here.
first, is the policy tpo, tpft or comprehensive? You’d expect comprehensive policies to cost more because they provide the most comprehensive coverage (covering your car for fire, theft, and accident damage, as well as mandatory third-party coverage). however, comprehensive plans can sometimes be cheaper: it seems that insurers see drivers who want to cover their car as lower-risk customers who warrant a discount compared to drivers just looking for basic protection.
Second, what features does the policy provide? there are many “optional” features that may be included as standard or available as an add-on for an additional premium. Generally speaking, the more features a policy includes, the higher the auto insurance quote.
what is the cheapest car insurance group?
The cheapest auto insurance group is 1 and the most expensive auto insurance group is 50. Examples of cars in insurance group 1 include certain versions of Volkswagen Polo and Up!, Skoda Fabia and Citigo, seat mii, smart forfour, vauxhall corsa hatchback, nissan micra hatchback and ford ka plus.
However, keep in mind that a car model may have a variety of insurance groups, which vary by trim level. for example, higher spec models or versions with a larger engine would normally have a higher insurance group.
Conversely, just to give you an idea of the other end of the spectrum, examples of insurance group 50 cars that are the most expensive to insure include Audi Q7 6.0 TDI, Audi R8, Bentley Continental GT, BMW M6, Ferrari f12 berlinetta, maserati granturismo, mercedes-benz s-class and more.
meaning of car insurance deductible
An auto insurance deductible is the amount you must pay for a claim. Every time you make a valid claim with your auto insurance provider, you will be required to contribute an amount toward the claim. the amount contributed by the policyholder is called the excess. the insurance provider will pay the remainder of the claim, up to the insurance limit.
For example, imagine making a claim for a stereo worth £300 that was stolen from your car. If your policy has a £100 excess and a £500 limit for factory-fitted entertainment equipment, then your insurance company will pay £200 (£300 minus the £100 excess you pay).
car insurance for a new car
It’s essential to purchase auto insurance on a new car before you drive it home. Driving a new car home without insurance is illegal and can result in fines and points, and in some situations can end in disqualification from driving or having your car impounded or even destroyed. Fortunately, there are a few options for dealing with new car insurance.
If you know what car you are going to buy in advance, you can take out your annual insurance before you go to pick it up. auto insurers will quote policies with a future start date, so you can research prices and order your policy days or even weeks in advance. Of course, you’ll only want to buy a policy when you’re confident in your car purchase, because car insurance policies can have high cancellation fees. Note that the cost of canceling car insurance is usually cheaper during the 14-day cooling-off period.
Another option is to buy short-term coverage for your car. Term insurance can be purchased to cover your car for hours or days, and it may give you some time to arrange an annual policy if you haven’t done so before you pick up your new car. This can be especially helpful if you spontaneously buy a car and haven’t researched and insured a policy ahead of time.