Car Insurance: How It Works and How to Pay Less

Driving without insurance is a criminal offence. Your car can be seized, you’ll get points on your licence, and fines start at £300. So you need it - the question is how to get it without spending a fortune.

The Three Types

All car insurance sold in the UK falls into one of three categories:

Third Party Only

The legal minimum. Covers damage you cause to other people, their vehicles, and their property. Doesn’t cover damage to your own car.

If you crash into someone’s Porsche, their car is covered. Yours isn’t.

Third Party, Fire and Theft

Same as third party, plus:

• Pays out if your car is stolen
• Pays out if your car is damaged by fire

Still doesn’t cover your own accident damage.

Comprehensive

Covers everything above, plus:

• Damage to your own car from accidents (your fault or not)
• Windscreen repair/replacement
• Personal belongings in the car
• Personal injury cover
• Sometimes breakdown cover

Here’s the odd thing: Comprehensive is often barely more expensive than third party. Sometimes it’s actually cheaper. Insurers assume careful drivers choose comprehensive, so they’re a lower risk. Third party only attracts higher-risk drivers, pushing up those premiums.

Always compare all three types. Don’t assume less cover means less cost.

What Affects Your Premium

Insurers calculate premiums based on risk factors:

Factor	Lower Risk (Cheaper)	Higher Risk (More Expensive)
Age	30-65	Under 25, over 75
Driving experience	10+ years	New driver
No claims bonus	5+ years	0 years
Location	Rural, low crime	Urban, high crime
Car group	1-10	40-50
Annual mileage	Under 5,000	Over 15,000
Job title	Accountant	Delivery driver
Parking	Garage	Street
Modifications	None	Performance parts

Some factors you control; others you don’t. A 19-year-old in London pays vastly more than a 40-year-old in the Cotswolds. That’s just how it works.

The No Claims Bonus

This is the biggest discount most people have. Each year you don’t claim, you earn another year of no claims bonus (NCB). Typical discounts:

Years NCB	Discount
1 year	30%
2 years	40%
3 years	50%
4 years	55%
5+ years	60-75%

A five-year NCB can cut your premium in half or more.

Protected no claims bonus: For an extra fee, insurers offer to protect your NCB so it’s not lost after a claim. This sounds great but read the terms carefully. You still might see your premium rise after a claim - they’re just protecting the discount percentage, not your actual price.

Ways to Cut Costs

These actually work:

Pay Annually

Monthly payments are credit agreements with interest. You’ll pay 10-20% more over the year. If you can afford the lump sum, pay upfront.

Increase Your Excess

The excess is what you pay towards any claim. Standard is around £250-£350. Raising it to £500 or £750 lowers your premium. But only do this if you could actually afford that amount after an accident.

Add an Experienced Driver

Adding a parent or partner with a clean record as a named driver can reduce premiums, especially for young drivers. But they must actually drive the car sometimes. Listing someone as the main driver when they’re not is called “fronting” and it’s fraud.

Black Box Insurance

Telematics policies track your driving via an app or device. Drive safely and your premium drops. Young drivers can save 20-40% this way. The downside: late-night driving, hard braking, and speeding hurt your score.

Consider Your Car

Before buying, check the insurance group. Cars are rated 1-50, with 50 being the most expensive to insure. A small engine, cheap-to-repair hatchback is far cheaper than a fast coupe.

Job Title Matters

Be accurate but choose wisely. “Chef” and “kitchen manager” describe the same job but might get different quotes. Don’t lie - but if there are multiple truthful descriptions of your role, try them all.

Park Off the Street

Parking in a garage or driveway is cheaper than street parking. If you have the option, use it.

Mileage

Lower annual mileage = lower premium. Estimate accurately. Don’t guess high “just in case” - but don’t underestimate either, as claims can be rejected if you’ve massively exceeded your stated mileage.

When to Shop Around

Every single year. Loyalty is punished in car insurance. Renewal quotes are almost always higher than new customer prices.

Three weeks before renewal:

1. Get your renewal quote
2. Compare on 2-3 comparison sites (they show different insurers)
3. Try 2-3 direct insurers (Direct Line, Aviva, NFU don’t appear on comparison sites)
4. If you find cheaper, either switch or call your current insurer to haggle

Many people save £100-£300 just by comparing instead of auto-renewing.

What’s Not Covered

Standard policies exclude:

• Driving under influence of alcohol/drugs
• Driving without valid licence
• Using car for purposes not declared (racing, taxi work)
• Wear and tear
• Mechanical breakdown
• Driving in excluded countries
• Claims from deliberately caused damage

Read the policy documents, especially if you do anything unusual with your car.

If You Have an Accident

1. Stop and exchange details - Name, address, insurance details with other driver. Legal requirement.
2. Report to police if required - Injuries, hit and run, or if you couldn’t exchange details at the scene
3. Document everything - Photos of damage, road layout, weather conditions
4. Get witness details - If anyone saw what happened
5. Tell your insurer - Most policies require notification within 24 hours
6. Don’t admit fault - Even if you think it was your fault, let insurers determine liability

Dashcams help enormously with disputed claims. Consider getting one.

Fronting: Don’t Do It

Fronting is listing an experienced driver as the main driver when they’re not. Parents sometimes do this for children to get cheaper insurance.

It’s fraud. If you claim, the insurer can:

• Refuse to pay out entirely
• Cancel the policy (making future insurance much harder)
• Prosecute

The young driver can be the policyholder. Experienced drivers can be named drivers. But whoever drives most must be listed as the main driver.