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We all need car insurance to drive on the road but finding the right type of cover can be tricky. This guide aims to give you a greater understanding of how car insurance works and helps you make a more-informed choice when selecting the right cover.

How to choose car insurance

We all need car insurance to drive on the road but finding the right type of cover can be tricky. This guide aims to give you a greater understanding of the basics and help you make a more-informed choice when selecting a policy.

How does car insurance work?

Car insurance pays out if your car is stolen, vandalised, catches on fire or if you are involved in an accident. As a minimum, it protects you against any damage you cause to other road users, the public or their property – what are called third parties.

You only need to claim your policy when an accident is your fault. If another driver is to blame, their insurance should pay instead. Find out more in our how to claim guide.

Do I need car insurance?

If you drive without car insurance you could face a fine of up to £1,000 or have your vehicle seized and destroyed. The has more details on the punishments you could face.

The only time there is no need to insure your car is if you officially declare it not in use through a statutory off road notification (SORN). The vehicle must, however, be kept on private land, and not on any public highway.

What does car insurance cover?

Car insurance covers you against financial losses, but the level of protection depends on what type of policy you choose.

If you cause an accident your insurance company will cover the costs. All you will have to pay is the excess – a fee set by the insurance company – plus any voluntary excess, which is an additional amount set by you. If you claim, your premiums are likely to increase.

Car insurance cover is available in different levels, and the level you choose will determine how much of the costs are covered by your insurance company.

What types of car insurance are there?

There are three levels of car insurance cover:

Comprehensive cover

Sometimes called “fully comprehensive” or shortened to “fully comp”.

Main features: Covers you, your car, your passengers and property, as well as any third parties involved in an accident. Also protects your car against vandalism and theft.

Suitable for: Most drivers. Three-quarters of UK drivers choose comprehensive cover because it offers the most complete protection. Some comprehensive policies will allow you to drive other cars, but not all.

Third party, fire and theft car insurance 

Sometimes shortened to TPFT.

Main features: Covers third parties involved in an accident, but also provides protection for your car against theft and damage caused by fire. It will not pay out to cover the damage to your vehicle after an accident or act of vandalism.

Suitable for: Those looking for a cheaper policy, although fully comprehensive insurance can still sometimes cost less. Check out our guide on the different levels of cover.

Third party

Main features: This is the most basic level of car insurance and covers liability for injury to others and any damage to third party property only. This level of cover is the minimum legal requirement for motorists in the UK.

Suitable for: Drivers who drive infrequently, or those looking for the cheapest possible cover. Not all insurers offer this type of policy. It is not always the cheapest.

Other types of car insurance cover

There are different types of car insurance cover, designed for specific drivers or vehicles. These include:

• Multi car insurance – enables households to claim discounts for insuring multiple vehicles with the same insurance company

• Black box insurance – suitable for young or newly qualified drivers to claim cheaper car insurance by monitoring their driving behaviour using a telematics device

• Young driver car insurance – cover for young drivers, considered by car insurance companies to be high-risk drivers

• Learner car insurance – car insurance that covers you until you pass your driving test

• Taxi insurance – cabbies face higher premiums because they drive for many hours at a time

• Short term car insurance – temporary cover for when driving a car for just a few days or hours

How long does a car insurance policy last?

Most car insurance policies last for one year, although you can choose to leave your policy early subject to cancellation fees, which can be as much as £55. Find out more about fees and cancelling your policy in our managing your policy guide.

If you need car insurance cover for a shorter period you can take out a short term policy that can last just a day or a few weeks. Our short-term car insurance guide has everything you need to know.

How much does car insurance cost?

If you are viewed as a high-risk driver by an insurance company, it will charge a higher premium because you are seen as being more likely to have an accident and make an expensive claim.

Car insurers use the following factors to determine your risk profile.

The car you drive

• Your car: An expensive new car can cost more to insure as repair bills are usually higher. Equally some older cars have fewer modern safety features and can cost more to insure.

• Engine size: The general rule is the bigger your engine, the higher your insurance premium. The cheapest cars to insure tend to be small cars with low powered engines.

• Modifications: Any performance related modifications (i.e. engine changes or spoilers) made to your car are likely to increase your premiums. Drivers with these improvements are statistically more likely to make a claim and repairs are more expensive, so the cost of your cover will go up.

Personal information

• Address: Where you live and where you keep your car also affects your premiums. If you live in a high crime area and park on the road you will pay more than if you live in a quiet, low crime area and keep your car in a locked garage.

• Your age: Car insurers are notoriously ageist and charge young drivers more. Young drivers have more accidents and, because they injure other young people, the claims tend to cost more. The latest figures show the cost of car insurance for 17-year-olds was to £1,911, but 18-year-olds paid an average price of £2,091.

Your driving

• Driving experience: The more experienced you are the lower your premiums are likely to be. If your driving history is chequered and you have had driving convictions, then your premiums may be higher.

• No claims bonus: Your premiums will be much lower, sometimes up to 75% cheaper, if you can prove you are a safe driver with several years of no claims behind you. Read our no claims bonus guide for more information.

• Planned usage: The more you drive, the more you will pay. Insurers ask how you will use your car; commuting, leisure or both and how many miles you drive each year.

Your policy

• Excess: You can reduce your premium by choosing a higher excess amount. By agreeing to pay more if you need to claim you reduce the risk to the insurer as they will need to contribute less. Here is how car insurance excess works.

10 easy ways to cut your car insurance costs

How does a car insurance group affect your premium?

Each car is assigned a car insurance group by the Group Rating Panel, which is made up of members of the Association of British Insurers (ABI) and Lloyd's Market Association (LMA). There are 50 groups. Group 1 is the cheapest to insure, and group 50 is the most expensive.

Cars are assigned a group based on several factors including:

• Repair costs and times

• The car's performance, e.g. acceleration and top speed

• Safety features

• New car value

• Car security

Examples

• Group 1: Vauxhall Corsa Hatchback 1.0ltr

• Group 50: Range Rover Sport 5.0ltr V8

If you want to keep the cost of your insurance as low as possible, look for cars in the lower insurance groups. You can find out which group your car is in on the .

Can you get car insurance for every type of car?

There are certain types of cars which are tricky to find cover for. Not all car insurance companies will offer policies for:

• Performance cars

• Classic cars

• Kit cars

• Modified cars

• American or imported vehicles

To get insurance for these types of vehicles it may be necessary to find companies that provide specialist cover, though your premiums are likely to be more expensive than insurance for factory models.

Many insurance companies will refuse to cover young or newly qualified drivers for certain vehicles, particularly high-performance cars with large engines, and those that agree to provide cover will ask for very expensive premiums.

If you have previous driving convictions, even speeding points on your licence, you may also find your cover is more expensive and your options are limited. There are insurers that offer specific cover for drivers with more serious convictions, but again the premiums are likely to be high.

Is it worth adding extra cover to my insurance policy?

Many car insurance providers offer extra cover options. These come at an additional cost to your main premium, but they could give you valuable protection if you use them. Common add-ons include:

• Breakdown cover: This will provide roadside assistance should your car break down. For more on what this gives you read our guide and compare policies here.

• Legal cover: This covers expenses if you have to take legal action after an accident. Here is more on how legal cover will protect you.

• Key cover: This will cover the replacement of your car keys if they are lost or stolen, which can cost over £200. It can also include the cost of locksmith charges and new locks. Some policies cover the cost of transport to a repairer and any car hire charges.

• Windscreen protection: Protects against the cost of repairing or replacing your windscreen, rear or side windows if they are chipped or broken.

• Courtesy car: Offers the use of an alternative vehicle when your car is stolen or off the road following an accident. Check each policy first as some insurers will not provide a car if your vehicle is written off.

• No claims bonus protection: Varying on the insurer, this cover allows the policyholder to make a claim – usually once during the year insured – without the no claims discount being affected.

Insurers may offer one or more of these add-ons as standard, so it is worth shopping around if you think you would benefit from added cover.

If you want specific extras, like breakdown cover, consider comparing standalone policies first as they may be cheaper than adding them to your car insurance policy. Doing this also provides you with a wider range of cover options to choose from.

Here is a more detailed look at the extras available, and whether they are worth adding to your policy.

Which car insurance extras are worth having?

Should you pay your car insurance monthly or annually?

Paying for your insurance in one go annually is usually the cheapest option if you can afford it. This is because when you pay monthly you will usually be charged interest on top of your premium, with some insurers charging up to 30% APR.

You can avoid this by using a 0% purchase credit card to pay for your insurance and then clear the balance within the interest free period, although some insurers may charge a small fee for paying by credit card so check to make sure the overall cost is worth it.

Should you get a 0% purchase credit card?

Compare 0% purchase credit cards