How to pick the best car insurance quote

Buying car insurance can be a daunting task. There are minimum insurance requirements you must meet by law, and the wide selection of products and providers makes for a competitive but confusing marketplace. Here we’ll discuss some of the basics of car insurance so you’ll have a better understanding of 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 Party, Fire and Theft
  • Comprehensive

Third Party Only (TPO) car insurance only covers injury or damages to third parties. It won’t cover theft of or any damage to your own car, whether due to fire, explosion, theft/attempted theft or a collision. As we discuss in the next section, TPO is the minimum level of cover required by law. 

Third Party, Fire and Theft (TPFT) provides the third party coverage offered by a TPO policy, plus cover for damage or loss to your car due to fire and theft. TPFT is the middle level of car insurance coverage in the UK. It won’t provide any protection in case your car is damaged in an accident.

As the name suggests, comprehensive car insurance is the best car insurance you can buy. It covers everything offered by a TPFT policy, plus any damage incurred in an at-fault collision to your car - including if the car is a complete write off. 

How car insurance works

In the most basic terms, car insurance works this way: a policyholder pays a premium to a car insurance provider, and in return the car insurance provider will pay out on any valid claims up to the limit of insurance (less any excess, of course). If a policyholder makes their premium payments, sticks to the terms of the policy and a claim meets the criteria, then a claim will be paid.

Each car insurance policy is subject to a list of terms and conditions, and certain situations will be excluded from cover. For example, car insurance policies usually exclude theft claims if a car was left unlocked. 

According to NimbleFins, some of the best-rated cheap car insurance companies work with  preferred repair shops to fix damaged cars. It’s important to note that coverage may differ if you do not use an insurance provider’s network of preferred repairers to carry out any covered repair work. For example, limits of insurance (e.g., for windscreen repair) might be lower or you may not get a free courtesy car if you opt for an out-of-network repair shop.

Is car insurance mandatory?

Yes, the Road Traffic Act 1988 specifies that car insurance is mandatory if you use your car on roads or public places. Registered keepers are required to 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. 

It’s not compulsory to buy a higher level of cover (e.g., TPFT or comprehensive). However, those with a valuable car or who could not easily afford to repair or replace their car if it was stolen or damaged in a collision will want to consider buying a TPFT or comprehensive policy. While not required by law, these higher levels of cover can provide valuable protection for your car and your personal finances.

There is one exception to mandatory car insurance - when a vehicle is declared to be “off the road” via a Statutory Off Road Notification (SORN) with the Driver and Vehicle Licensing Agency (DVLA). In that case, the vehicle cannot be driven on public roads. A SORN car doesn’t need insurance, tax or an MOT. That said, some vehicle owners still opt to insure a SORN car to protect against theft, fire or other damages.

How car insurance is calculated

Car insurance is calculated based on two primary considerations: the perceived risk of insuring a certain car and driver, as well as the product and features being quoted by an insurance provider. 

To calculate the perceived risk and generate a quote, an insurer uses an internal pricing model that factors in many details about the car and driver - and the more risk in an application, the more expensive a quote will be. As part of this, insurance companies rely heavily on Thatcham Research, which administers the Association of British Insurer’s (ABI) Group Rating system. Every car sold in the UK is issued with an Insurance Group Rating that indicates the relative risk to insurers.

Pricing models also incorporate many factors, such as the value and engine size of the vehicle as well as the age, experience and claims history of the driver. For example, a more expensive car would cost more to repair or replace if it’s in an accident, so insurance rates would typically be higher. And cars that are stolen most frequently might cost more to insure since there’s a higher chance an insurer will need to pay out on a theft claim.

Location can also drive differences in insurance rates as insurers take into account the risk of accidents and theft in different neighbourhoods. Rates can even vary from one post code to the next, so you might pay a different rate if you simply move down the street. 

The second main consideration when calculating car insurance quotes is the product being sold - that is, how much cover is being provided by a policy. There are two main factors at play here. 

First, is the policy TPO, TPFT or comprehensive? You’d expect comprehensive policies to cost the most because they provide the widest cover (covering your car for fire, theft and accident damage, as well as the mandatory third party cover). However, comprehensive plans can sometimes come in cheaper - it seems insurers view drivers who want to cover their car as lower-risk customers who warrant a discount compared to drivers only looking for basic protection. 

Second, what features are provided by the policy? There are many “optional” features that can either 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 car insurance quote.

What is the cheapest car insurance group?

The cheapest car insurance group is 1 and the most expensive car insurance group is 50. Examples of insurance group 1 cars 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, be aware that one model of car can have a range insurance groups, varying by trim level. For instance, higher-spec trims or versions with a larger engine would typically have a higher insurance group.

In contrast, 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.

Car insurance excess meaning

A car insurance excess is the amount you must pay towards a claim. Anytime you make a valid claim with your car insurance provider, you’ll be required to contribute an amount towards the claim. The amount contributed by the policyholder is called the excess. The insurance provider will pay the rest of the claim, up to the limit of insurance.

For example, imagine you make a claim for a stereo worth £300 that was stolen from your car. If your policy has an excess of £100 and a limit of £500 for factory-fitted entertainment equipment then your insurance company would pay out £200 (£300 less the £100 excess that you pay).

Car insurance for new car

It’s critical to arrange car insurance for 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 end in being disqualified from driving or having your car seized or even destroyed. Luckily, there are a few choices for sorting out insurance for a new car. 

If you know which car you’re buying ahead of time, you can arrange your annual insurance before you go to pick up your car. Car insurers will quote for policies with a future start date, so you can investigate prices and sort out your policy days or even weeks in advance. Of course, you’d only want to buy a policy when you’re sure of your car purchase, because car insurance policies can come with hefty cancellation fees. Keep in mind that the cost to cancel car insurance is typically cheaper during the 14-day cooling off period. 

Another option is to buy short term cover for your car. Temporary insurance can be purchased to cover your car for hours or days, and can 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 useful if you buy a car spontaneously and haven’t researched and locked in a policy ahead of time. 

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All content is for informational purposes only and is the opinion of the author. Nothing on this website should be interpreted as "advice". Money Dashboard Ltd make no representations as to the accuracy, completeness, suitability or validity of any information on this site and will not be liable for any errors or omissions or any damages arising from its display or use.

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