Car insurance explained: 2021 edition

Car insurance is a product that provides financial protection in the event of an incident that causes damage or injury to another person, vehicle, property or animal.

It can also cover your own costs if you have a car accident, if your car is vandalised or stolen, or if it catches fire.

Driving on UK roads without insurance is against the law, but you only need to claim on your policy if you have an accident that’s your fault.

Is there more than one type of car insurance?

Yes, there are three main types of car insurance:

  • Third party
  • Third party fire and theft
  • Fully comprehensive

Third party

This is the minimum level required by law; it only covers third parties (other people), rather than covering you directly. On this type of policy, you can claim in the following instances:

  • Damage to someone else’s property
  • Injuries to other drivers, passengers, pedestrians or animals
  • An accident caused by a passenger or a named driver on your policy
  • Injuries to any passengers in your car where the accident was your fault

Third party insurance doesn’t cover repairs to your own vehicle if you were involved in an accident.

Third party fire and theft (TPFT)

This is the same as third party insurance, but you’ll also be covered in the following instances:

  • If your car is stolen
  • If your car is damaged / written-off by fire

You may also be covered for damage caused by an attempted theft of your vehicle.

Fully comprehensive

This is the highest level of cover you can get – it provides the same protection as a TPFT policy, but will also pay out for damage to your own car.

Some comprehensive policies also include things like medical costs, or a courtesy car if yours is being repaired.

Worth knowing: Not all insurers offer all three types of insurance.

What is an ‘excess’?

If you make a claim on your car insurance, you’ll typically need to pay a set amount of excess (i.e. a figure that’s deducted from your pay-out).

There are two different types of excess – compulsory and voluntary:

  • Compulsory excess is a fixed amount that’s applied to any claim you make, set by the insurer when you purchase your policy. The figure is usually higher for young/new drivers.
  • Voluntary excess is where you choose how much you’re willing to pay in the event of a claim. Increasing this figure can bring down the cost of your policy, but it needs to be an amount you’d be comfortable with if you did have to make a claim.

How much does car insurance cost?

The average cost of car insurance in the UK is £465/year, according to the latest data from the Association of British Insurers.

The price you pay will be based on a number of factors, including:

  • Your age
  • Your occupation
  • The make and model of your car
  • Your address
  • Where your car’s parked overnight and/or during the day
  • Your driving / claims history
  • Your excess
  • The type of cover you choose

How can I minimise the cost?

It’s worth taking the time to shop around – you can compare quotes on sites like, Money Supermarket and Compare the Market.

You may also want to check the companies that aren’t listed on comparison sites; the main ones are Direct Line and Aviva.

Avoiding making claims where possible will also help keep costs down by protecting your no-claims bonus.

And you can reduce the cost of your insurance if you’re a young or less experienced driver by having a ‘black-box’ (aka a telematics device) installed, which monitors things like driving speed, braking, acceleration and time of day you are driving.

Finally, consider asking your current insurer if they’ll beat your best quote – they may be willing to do this to keep you as a customer.

What company should I go with?

It’s really important to do your research, and compare not just the quotes but the companies who are providing them. Have a look at each quote in detail, as often the cheapest option comes with a host of added fees, an unusually high excess, or does not cover what you require.

In terms of customer service, some of the companies with the best reputations in 2021 (as analysed by Bought By Many) include:

How often do I need to buy car insurance?

Policies usually last for a year – you can pay annually or monthly, but monthly is almost always more expensive overall due to interest and admin fees. With monthly, you will also pay a deposit, which can be around 20% of the total annual cost.

What isn’t covered?

There are a number of things which car insurance policies tend not to cover, including:

  • Putting the wrong fuel in your vehicle
  • Using your vehicle for business purposes (if you’re not covered for this)
  • Track racing events (you will need track day cover)
  • Repair or replacement of modifications
  • Having a personalised number plate stolen

Worth knowing: Your policy will be invalidated if you put the main driver down as a named driver.

What additional types of car insurance are there?

As an addition to your car insurance, you may want to invest in extra types of cover, such as:

Ready to find a vehicle to insure? Check out our used cars for sale, or browse by brand for a new car

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