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Car insurance - the basics

Documentation & paperwork

As motor insurance is a legal requirement and given that whilst driving you can be stopped and asked to prove that you are driving with insurance, you naturally must have some form of proof or documentation that you have valid cover. This is supplied to you by your insurer once you have taken out a policy with them.

  • A certificate of insurance.
  • A schedule and/or policy document.
  • A cover note.

A certificate of insurance is evidence of insurance as required by the Road Traffic Act. This is the document you will be asked for, should you be required to prove your current valid insurance. The schedule and/or policy document is different from the certificate in that it sets out the full the terms and conditions of your insurance policy. Finally, the cover note acts as a temporary certificate for the purposes of the Road Traffic Act. A cover note would usually be issued to allow either a broker or insurer time to complete their paperwork before they issue the full certificate, though this practice has, over time, become less and less frequent.

You should always read your policy to make sure that it gives you the level of cover you agreed with your broker or insurance company. If there is any part of the document you are unclear about or wish to clarify then contact your broker or insurer; they should be more than happy to explain any queries you have about the language or terms shown. Should you attempt to make a claim for something which is not shown or covered on the policy or is noted as an exclusion, the insurance company is well within their rights to refuse to pay your claim.

One thing to note about insurance contracts which is very important is that you are required to inform the broker or insurance company everything you believe to be relevant or important; about you, your driving history, claims or convictions etc. Literally everything that relates to you as a driver or road user, as any information that is not shared that later becomes apparent during a policy term could invalidate the cover that you have. Unlike many situations where a contract is agreed upon where you are required to only answer or inform based on the questions that you are asked, motor insurance falls under ‘utmost good faith’ requiring you to inform of any relevant information whether you are asked or not.

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Policy exclusions

Most policies will feature key exclusions. These will be outlined in your policy documents, and will highlight all of the areas that your policy will not cover, for example: driving other cars. Other exclusions could be protected no claims bonus, or windscreen cover. Please make sure you check all exclusions on your policy documents, so that you are aware of all limitations.

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Driving other cars

Driving other cars allows third party only cover on another vehicle; providing the car is currently insured by another party, and you have the owners’ permission to drive. If your motor insurance permits driving other vehicles, it is only applicable to vehicles not belonging to the policyholder and not hired to him under a hire purchase agreement.

There are a number of insurers who have removed this feature due to the cover being misused. It appeared that some drivers were insuring small cars but using the ‘driving other cars’ facility to drive far more powerful vehicles The whole idea of this cover being available was for emergency cover use only, as driving without any insurance cover is illegal.

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An excess is your contribution towards any claim.

Let’s say you have a claim for accidental damage, and your accidental damage excess is £250. If the cost of the claim is £600 you will contribute the first £250 of the claim leaving your insurance company to pay the remaining £350 (£600 claim minus £250 (your excess) leaves £350 outstanding). It goes without saying that if you have a £250 excess and your claim is worth less than £250 then there is little point approaching your insurer as your costs would cover the total damage cost.

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Voluntary excesses

When you take out a policy with an insurance company you will have the opportunity to contribute towards any claim. While you may think this is identical to a compulsory excess, a voluntary excess is the amount you agree to contribute on top of your compulsory excess. Let’s say you choose to have a £250 voluntary excess on your policy, the policy itself may already have a £200 compulsory excess so dependant on what type of claim you have, you may find your total excess payable is £450.

The benefit of a voluntary excess is that generally the more you agree to pay towards a potential claim the cheaper the premium will be.

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Compulsory excess

In addition to any voluntary excess you may have selected, you may be asked to pay a compulsory excess towards any claims on your policy, though there are some policies which may have nil compulsory excess. Compulsory excesses will more than likely be found on policies where there is a young driver or a high value vehicle.

Although you may see an excess as a downside, if you consider that by contributing towards a claim it allows the insurer to lower the costs of their premiums. By minimising the potential for lots of smaller claims, this reduces the workload of the insurer in both employee and administration, allowing the insurer to save money which helps keep premiums low.

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Third party only (TPO)

The very minimum cover required by law in the UK is third party only. Third Party Insurance will usually cover your liability for injury to others (including passengers), damage to property and liability whilst towing a caravan or trailer. Third party insurance will not cover you for accidental damage to your own vehicle. So unless you can afford to repair the damage yourself or even scrap the vehicle and purchase another, you may want to consider third party fire & theft or comprehensive cover.

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Third party fire and theft (TPFT)

Third party fire & theft offers all that third party only cover offers, with the extra benefit that should you suffer a loss through either fire or theft you will be entitled to make a claim (Given, that you had made every practical effort to avoid theft or fire damage).

As third party fire & theft offers less cover than comprehensive generally you will find it costs less; however, many insurers are trying to convince customers to buy comprehensive cover by making the difference in cost as minimal as they can, making the extra cover a better buy.

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Fully Comprehensive Insurance covers you for everything third party fire and theft does, but in addition you will normally be covered for loss or damage to your vehicle, windscreen cover, personal effects, accidental damage and medical expenses too.

However, there is now a growing trend for insurance companies to offer comprehensive cover which has been stripped down, or hold reduced cover so please ensure to check all policy cover as you may find that windscreen cover has been removed or that your personal effects cover has been greatly reduced.

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No claims bonus

Did you know that you may not lose all your no claims bonus (NCB) if you come to claim. For non-protected bonus many people believe that by claiming they will lose their entire no claims bonus but generally this is not the case. The amount of no claims bonus lost for a fault claim on a non-protected policy is 2 years. So if you have 4 years no claims bonus then it would be reduced to 2 years. Another point to mention about no claims bonus is that there is a maximum level of discount you can receive, so it may be that a company offer maximum discount for 5 years no claims discount. So although you may have 9 years continuous claim free years, should you have a fault on a non-protected policy then you may well find your no claims bonus reduced to 3 years. The extra years are simply a record of your driving history and may well not offer any further discount. Different companies may well have different maximum no claims bonus levels so this could be 4 or perhaps 5 years.

Once you have achieved the maximum level you should then be able to protect you no claims bonus. If you have 5 years protected no claims bonus and you have a fault claim, your bonus level won't be reduced. However, insurance companies don't just base their quotes or premiums on the amount of no claims bonus you have, they will still look at your claims history. So although the following year you will still receive the same maximum discount on your policy due to the protection, your quote or premium may well be higher due to the new claim added to your policy. Insurance companies see policies with claims as a greater potential risk than claims free insurance policies.

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