Car insurance explained

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Your car is likely to be the second biggest investment you'll ever make. Getting it insured isn’t just common sense – it's a legal requirement.

In the first of a week of insurance features Alex Eckford looks at the facts about car insurance – and how to get it.

The purpose of car insurance is to make sure you have enough money to deal with the outcome of an accident, theft or damage. If you own a car in the UK, insurance is compulsory – and driving without it is an offence which could end up with you losing your motor.

Hundreds of companies in the UK offer car insurance – each with their own special offers - and possible hidden extras. It pays to use an online comparison service or phone around – it could save you hundreds of pounds.

They generally offer three main types of car insurance – third party, third party fire and theft, and comprehensive.

Third party only insurance (TPO)

The cheapest kind of insurance available, TPO only covers you against damage to another party's property – or a third party driver.

The most important thing about third party insurance is the lack of cover it will give you. Neither you or your car will be insured, and if your motor is stolen you won’t receive any money.

Third party fire and theft insurance (TPF & T)

If you can afford it third party fire and theft insurance is better option as it adds cover against your car being stolen or setting on fire.

As with a TPO policy, no payment will be made towards the repair of the vehicle.

Comprehensive insurance (or 'Full Comp')

As the name suggests, this is the best policy you can buy. You'll be covered if your vehicle is stolen, set on fire, and any damage to your car will be paid for, whether you’re responsible for the accident or not. As with TPO, damage to a third party and their car will be covered.

Which insurance policy is right for you?

It's a tricky question to answer, due to the dazzling array of options on offer from such a large number companies.

In a nutshell, you should ask the right questions of the insurance companies, and do as much research as you can.

Age matters - the vast majority of insurance companies offer higher premiums to younger drivers because of the higher rate of accidents among drivers aged 17-24.

The more power and performance your car has will increase the cost of insurance, as will its desirability to thieves - expect to pay significantly more if you have a high performance car. The postcode area you live in and where you park it will also play a part in the final quote.

If money is really tight, get third party only insurance, but be aware of the potential pitfalls. Otherwise, ask for two quotes from each insurance company – one for third party fire and theft, and one for comprehensive insurance. It's the best way to find the insurance product that's right for you.

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