FOOL'S EYE VIEW
60-Second Guide To Car Insurance

By James Carlisle
November 11, 2002

Cars are expensive beasts and one of their biggest overheads is the insurance. As ever the trick to cutting down the costs is knowing what you want and shopping around to make sure you're getting a competitive price. Here's a 60-second guide to get you started with the first bit. You can make a start on the second in the Fool's Insurance Centre.

0:57 You have to have car insurance!

If you drive a car, then you need to be insured to the legal minimum. That's fair enough, because it means we can rely on the nutters that crash into us to have insurance for the damage they might cause. If you can't trace them, or if they break the law and don't have insurance, then you may have recourse to compensation from the Motor Insurers' Bureau (MIB).

0:52 The legal minimum -- 'Third party'

The legal minimum, as prescribed by the Road Traffic Act, is to have insurance against your liability for damage caused to other people and their property, by your use of a vehicle on a road. The short hand for this is 'third-party' insurance.

Note that a basic third-party insurance policy doesn't cover you for damage caused to yourself or your own car. If the damage is the fault of someone else, then damage to you should be covered by their insurance (or by the MIB) but, if the damage is your fault, then that's just tough.

0:44 'Third party, fire and theft'

One step up from the legal minimum is 'third party, fire and theft'. As you might guess, this covers you for third party (as above), plus any loss you might suffer as a result of your car going up in smoke or getting nicked. Again, note that this doesn't cover you for damage caused to yourself or your own car.

0:38 'Fully Compehensive'

The next step up from 'third party fire and theft' is 'fully comprehensive'. That gives you everything you get from the above, but it also introduces cover against damage caused by you to yourself and your own car. Quite how much it will cover you will depend on the small print of the policy, so be sure to read it carefully. It is supposed to be written in 'plain English' these days.

0:32 Who's insured to drive the car?

The other fundamental point about any insurance policy is who it actually covers to drive your car. The simplest and cheapest option is to opt for just yourself to be able to drive it. However, only one person can drive the car at a time and, so long as the insurance company is happy that another named person is no greater risk than yourself, then you might find that it costs little or nothing to add that person as a named extra driver. The next step up is to go for anyone to be able to drive the car, with your permission. But since this may involve people that the insurance company hasn't checked out, they'll charge extra.

0:25 Other bells and whistles

There are also other tweaks that you can include in your policy. Some of them relate to what the insurance covers, while others will relate to what you and the insurance company have to cough up if a claim comes up.

For example, most fully comprehensive policy will provide 'third-party' cover to drive other people's cars, with their permission, regardless of what that car's owner's insurance says about it.

In terms of what you and the insurer coughs up, the most common features are the 'no-claims discount' and the 'excess'. A no-claims discount means that your premiums get cheaper if you don't make a claim, while an 'excess' means that you agree to pay the first £x of any claim.

Further frills can then be added to these. For example, when you've built up a substantial no-claims discount, you can insure that so that you pay a little more to permit a certain level of claims each year without affecting the discount. You'd have to wonder why they don't just reduce the level of discount in the first place. All the more so since it's generally transferable between insurers (and so doesn't serve the purpose of tying you in).

Always remember the fundamental point of insurance -- it's there to protect you against risks that you can't afford to bear, but insurance companies aim to make a profit from you, so unnecessary insurance is wasteful. If you can happily absorb the occasional £500 when it comes to making a claim, then go ahead and have a £500 excess. What you save on your premiums over the years ought to make up for it. The most efficient insurance policy is the one that covers you for all the risks that you can't afford to take on and doesn't cover you for any risks that you're comfortable with.

0:12 And if I go abroad?

UK insurance policies have to cover you for the legal minimum insurance in all European Union countries, or the minimum UK legal cover, whichever is the greater. If you want more cover than this, or you're travelling outside the EU, then you should be able to extend your insurance cover by phoning the insurer.

0:06 How can I make my insurance cheaper?

Making your car insurance cheaper basically means demonstrating to the insurance company that you're not going to cost them an arm and a leg in claims. That way, they'll probably be prepared to reduce your premiums to get your business. There are some tips about reducing your premiums here.

Find out more about all types of insurance in the Fool's Insurance Centre.