The A-Z of Car Insurance

If you own a vehicle, you will already know the importance of car insurance, providing you with financial protection and peace of mind. However, with all the associated terminology, you may find it a little daunting trying to understand the ins and out of car insurance.

Here, we try and navigate through the jargon with our A - Z of car insurance, to help you understand the complexities and make it easier for you to make informed decisions.

A is for Annual Premium

This is the amount you pay each year for your car insurance cover. Your premium will be influenced by factors such as your age, number of years driving, vehicle type, location and your claims history.

B is for Breakdown Cover

This is an optional add-on to your car insurance policy, and will provide assistance to get your back on your travels if you breakdown on the road. Generally it will include services such as roadside assistance, towing and emergency repairs.

C is for Comprehensive Cover

This cover options offers extensive protection for your car, covering theft, vandalism and damages from accidents. It often includes third-party liability cover for property damage or injuries caused to others.

D is for Deductible / Excess

This is the amount you must pay yourself towards a claim before your insurance cover kicks in. It may be a fixed amount, or a percentage of the claim, and you may see that by choosing a higher excess your car insurance will be lowered.

E is for EU cover

With EU cover you car insurance policy is extended to provide the same level of protection you benefit from in the UK when driving in countries in the European Union. This will protect you should face an accident abroad and ensures that you comply with legal requirements.

F is for Fault Claims

When you are deemed responsible for an accident, a fault claim occurs. Your premium may increase if you make a fault claim, so you may wish to consider any financial implications before continuing with a claim.

G is for GAP Insurance

In the event of theft or total loss, Guaranteed Asset Protection (GAP) insurance covers the difference between the value of your car and any outstanding finance. This can prevent you from a financial burden should the value of you car depreciate rapidly.

H is for Hire Car Cover

If you car is stolen or being repaired after an accident, Hire Car Cover provides a replacement vehicle. This helps you stay mobile whilst your vehicle is off the road.

I is for Insurance Premium

An insurance premium is the amount of money you pay to the insurance provider for your care insurance cover. It may be paid annually, and some insurers offer the option of monthly or quarterly payments.

Insurance premiums can vary significantly between car insurance providers, so make sure you compare quotes from different insurers to make sure you get the best value for your money.

J is for Joint Car Insurance

Commonly used by couples or family members who share a vehicle, joint car insurance allows two or more people to be insured under the same policy.

K is for Key Replacement

If your car keys have stolen or you have lost them, key replacement cover reimburse the cost of replacement. It may include locksmith charges and the cost of programming for modern car key fobs.

L is for Legal Expenses Cover

In the event of a car-related legal dispute, for example recovering uninsured losses or pursuing compensation for personal injuries, legal expenses cover can provide financial support for legal fees and expenses.

M is for Modified Cars

You must inform your insurance provider if your car has been modified.

Your premium may be affected by modifications as the could increase the vehicle's value, attract a specific risk profile or alter its performance.

N is for Named Driver

This is an individual who is allowed to drive your vehicle and is specifically named on your car insurance policy. The adding of a named driver may affect your premium, especially if they have convictions or have a history of accidents.

N is also for No Claims Bonus

A discount offered by insurers for each claim-free year, a No Claims Bonus (NCB), rewards safe driving and over time can lead to significant premium reductions.

Acting as an incentive for responsible drivers to maintain a clean driving record, the longer you go without making a claim, the greater the discount you can build up - with some insurers offering a discount up to 75% discount after five or more years.

The NCB is generally tied to the policy holder and not the vehicle, meaning that you can transfer this when buying a new vehicle or switching insurers. However, it is important to note that you may lose a portion or all of you accumulated NCB if you make a claim. This may mean that you face a higher premium on your next policy term.

Your insurance provider may offer NCB as an optional extra, this would allow you to make one (or more) claims without losing your discount. If protecting your NCB comes at an additional cost, you may want to consider if it is worth the extra money based on your individual circumstances.

O is for Optional Extras

These are additional extras that you can choose to add to your car insurance policy for an extra cost. Optional extras may include breakdown cover, key. replacement or legal expenses cover. Before deciding to include them in your policy, consider their relevance to your circumstances or if you get this extra cheaper by taking it out separately.

P is for Policy Documents

It is important that you familiarise yourself with your policy documents as these contain the terms, conditions and details of your car insurance cover. This will help you to understand the extent of the protection included in your policy.

Q is for Quotes

To find the best policy that suits your budget and needs, it is essential to obtain quotes from different insurers so that you can compare cover options and prices.

R is for Renewal

Typically car insurance policies last for one year, after which they need to renewed. Make sure you know your policy renewal data to ensure you are covered, and also to give yourself time to shop around to ensure you are still on the right policy for you before renewing with your current provider.

Some insurers may auto-renew your policy, so if you don't make them aware that you won't be renewing the policy at the end of the term, it will be automatically renewed. It is important to check if your insurer does this, especially if you are looking to change provider as you don't want to end up in a situation where you are paying two providers.

S is for Salvage

This is the process of insurance companies recovering and reselling damaged vehicles. If a vehicle is declared a total loss, or involved in a bad accident, the insurer may take possession and offer it for sale as salvage.

Typically, salvage vehicles are sold at auctions and are purchased at a discounted price, usually by buyers who are looking to repair and restore them. If you are considering purchasing a salvage vehicle it is important to exercise caution - you could find that they require extensive repairs or have hidden issues. It can also be more challenging and costly to insure a salvage vehicle as some insurers may impose restrictions or higher premiums for these vehicle types.

Before making a decision on buying a salvage vehicle, make sure that you thoroughly asses the extent of the damage, consult with a mechanic that you trust and research what insurance options are available.

T is for Telematics Insurance

You may know this as black box insurance - the installation of a device in your vehicle to monitor your driving habits. Based on the data collected, safe driving may be rewarded with lower premiums.

T is also for Third-Party Cover

Offering cover for damages and injuries caused to other people and their property, third-party cover is the minimum legal requirement for car insurance in the UK. This cover type does not protect your own vehicle.

U is for Uninsured / Underinsured Motorist Cover

If you are involved in an accident caused by an uninsured driver, or they have insufficient cover, Uninsured / Underinsured Motorist cover will ensure that you are financially protected.

V is for Voluntary Excess

This is the additional amount that you choose to pay on top of compulsory excess. It may be tempting to opt for a higher voluntary excess in order to lower your premium, just make sure that if you do this that you can afford it in the event you need to make a claim.

W is for Windscreen Cover

In the case of damage, windscreen cover provides protection for the repair or replacement of your windscreen. Some policies may also include cover for other windows.

X is for eXclusions

Situations or circumstances where your car insurance does not apply are known as policy exclusions. Make sure that you carefully read your policy documents to ensure that you understand these exclusions and to make sure you have the right coverage for potential risks.

Y is for Young Drivers

Due to their perceived risk, young drivers often face higher insurance premiums. To potentially lower premiums, you may want to consider completing advanced driving courses, adding experienced named drivers or telematics (black box) insurance.

Z is for Zero Depreciation

Beneficial for new cars of vehicles with high depreciation rates, Zero depreciation or "new for old" cover ensures in the event of a claim that you will receive the full value of your car, without accounting for depreciation.

From annual premium, modified cars to zero depreciation, understand these key terms and options will help you cut through the jargon and select the right car insurance cover for your needs.

Remember, when searching for car insurance to carefully assess your needs and compare quotes to make sure you are getting the most suitable policy, and one which aligns with your budget.

Editorial Disclaimer: This article was updated 21.05.2023

Opinions expressed here are the author's alone, and not those of any bank, credit card issuer or any other company. This article has not been reviewed, approved or otherwise endorsed by any of these organisations.

NB: The information on this page does not constitute financial advice, please do your own research to ensure that the product / service is right for your individual circumstances.