Car insurance ‒ the different types explained

What does car insurance cover?

It depends on the type of policy you have, but car insurance typically covers your vehicle, as well as the damage that you might cause to other vehicles, to the property of other drivers and to other road users generally.

Car insurance can also include, or can be extended to include, cover for a host of different items, including personal belongings, medical expenses and breakdown assistance.

Here we explain how car insurance works for drivers in the UK and also those planning to drive overseas.

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What are the main types of car insurance?

There are three main types of car insurance policy:

Third party

Third party is the lowest level of cover. This is the minimum level of cover you need to be driving legally. 

It covers you if you're liable for damage or harm done while driving. That includes damage or injury to other drivers and their vehicles, as well as accidental damage to lampposts and walls. Third party does not cover your own car ‒ you'll have to foot the bill yourself if your car is damaged, stolen or vandalised.

Third party, fire and theft

Third party, fire and theft covers everything included in third-party cover, but it will also pay to repair or replace your car if it's stolen or damaged by fire.

Comprehensive car insurance

Comprehensive car insurance is the widest level of coverage available. It includes third party cover and fire and theft, and also covers wider damage to your vehicle.

Some policies will also cover you to drive the cars of others ‒ but usually only up to third-party level and in emergency situations.

• Find out more: car insurance policies rated by our experts

How is my car insurance premium worked out?

Insurers set the amount you'll pay based on a number of factors, including your record as a driver, your personal circumstances and your car.

For example, if you're an older driver with years of experience, living in a relatively safe area and driving a practical, reliable car, your premium is likely to be relatively cheap.

If you're a young, inexperienced driver with a high-performance car, the cost of your cover will be much higher.

You can find out how to reduce your premium in our guide to finding cheap car insurance.

The premium may not be the only expense you'll have to pay in buying or making changes to your policy. There may also be fees, or add-ons if you've opted for additional elements of cover (see our guide to insurers' add-ons, fees and charges). 

What is an excess?

An excess is the amount you pay towards any claim you make on your car insurance policy. For example, if you have a claim worth £500, and a £100 excess, you'll only receive £400 from your insurer.

Most car insurers have two types of excess: a compulsory excess, which can't be modified; and a voluntary excess, which you can set yourself.

Set your voluntary excess carefully. Your insurer will offer you a lower premium if you opt for a higher excess, but you'll be committing to paying more if you claim. Where damage to your car has been minor, a high excess can mean it's not worth claiming at all.

Am I covered to drive overseas?

Yes. Your car insurer will automatically provide third-party cover (the legally required minimum) if you're driving in the European Economic Area.

However, you may need a green card to prove that you have valid cover, depending on the country you're driving in. At the time of writing, you don't need a green card to prove your insurance cover if driving in the EU (including Ireland), Andorra, Bosnia and Herzegovina, Iceland, Liechtenstein, Norway, Serbia and Switzerland.

You can find out which countries you need a green card to drive in on gov.uk.

It's recommended that you contact your insurer about a month ahead of travel to ensure the green card reaches you in time.

If you don't have a green card in a country where one is required, you'll have to buy insurance locally. This may be more expensive than UK cover.

What is a no-claims bonus and should I protect it?

A no-claims bonus, or a no-claims discount, is a discount that will be taken off your premium if you stay claim-free for an extended period of time. The longer you don't make a claim, the larger the discount.

Your no-claims bonus will be cut if you make a claim, but the size of the reduction varies from insurer to insurer. They also have different policies on whether certain claims that aren't your fault (for example, if your car is is vandalised) will affect your bonus.

You can limit the impact of claims on your bonus by paying extra to 'protect' it. With 'no-claims bonus protection', a set number of claims will be exempted from affecting your discount. A maximum of two or three claims over a three-year period is common.

Protection shields you from losing your discount as a result of a claim, but the insurer can still raise the premium to which that discount is applied. This means that while you will be saving some money, protection is no guarantee that the premium you pay won't go up if you claim.

• Find out more: insurers' no-claims bonus policies in detail

Can I drive other vehicles under my policy?

If you're added to another driver's policy ‒ listed as a 'named driver' ‒ then you will be covered to drive their car up to that policy's level of cover. 

Your policy may also have some cover for driving cars (known as 'driving other cars' cover or 'DOC') even where you aren't named on the owner's policy. However, DOC cover usually only provides third-party cover, and in many policies only applies if you're making use of the car in an emergency situation. 

What if my insurer goes bust?

Like banking customers, insurance policyholders in the UK benefit from the protection of the Financial Services Compensation Scheme (FSCS) if their insurer goes bust. So if your car insurer fails, this means:

• If you're entitled to a refund of some of your premium, the FSCS will repay 90% of the owed amount
• If someone has made a claim against you that's covered by your insurance, the FSCS will pay it in full
• If you have an outstanding claim with your insurer that it can no longer pay, the FSCS will pay 90% of it