Insurance Guide:

What Cover Do You Need?
There are three main levels of cover. Comprehensive gives you the widest cover, but it's also the most expensive. To decide which level to go for, weigh up the cost of insuring your car against the costs of having to repair or replace it.

Third party only
This is the most basic level of cover. It fulfils your legal obligations by covering any injuries (including those to your passengers) and damage that you or your passenger cause to another person or their property in an accident. It won't pay out for any damage or injury to you or your car, but you could claim against the other driver's policy if the accident was their fault.

Third party, fire and theft
This is like third party cover but it also pays to repair or replace your car if it's stolen or damaged by fire. It might be suitable if your car won't cost much to replace should you write it off.

Comprehensive
With comprehensive insurance you get the same cover as third party, fire and theft, plus the insurer will pay out if you cause damage to your own car. Policies may also provide a range of additional benefits such as cover for windscreens, stereos, personal belongings, death or personal injury, and extended foreign travel cover. But, despite its name, a comprehensive policy won't cover you for everything. All policies carry exclusions, and different policies will offer different benefits.

Car grouping
All cars have a group rating between one and 20. This is based on the cost and availability of spare parts, the price of the car, performance, security features, and repair times. The higher the rating, the higher the premium. Drivers aged under 25 who own a car with a high rating pay particularly high premiums.

Who's driving?
The more drivers you insure, the more expensive your premium is likely to be. To cut costs, name the drivers you want to insure rather than opting for an 'any driver' policy. Older drivers pay less than younger ones, though premiums often start to rise again once you're over 70. And young women often pay less than young men. Your premiums will also be higher if you've got a bad claims record or past convictions.

Where you live also affects your premiums. In general, if you live in an urban area, you're likely to pay more than if you live in the country.

Other important factors
You'll sometimes pay more if you keep your car on a driveway or on the street than if you keep it in a garage. If you modify your car in a way that makes it more attractive to thieves or enhances its performance, your insurer will charge you a higher premium.

With some insurers you'll pay more if you do a lot of mileage (12,000 miles a year is considered to be average) or if you use your car for business.

• a cover note
• the policy document
• a schedule
• a certificate

To get the full picture, you'll need to study the documents together.

Your cover note is a temporary proof of insurance to cover you before your certificate arrives. Your policy is a general document that contains information on all three levels of cover available, add-on benefits you can buy, and general conditions.

Your schedule tells you which sections of your policy apply and if there are any excesses and endorsements (restrictions placed on your cover). The certificate is your evidence that you have the cover required by law.

Voluntary excess
Depending on the policy, the type of car you drive, or your claims history, you may have a compulsory excess on your insurance. This is the amount you'd have to pay towards a claim. You can get a discount on your premium if you agree to pay a voluntary excess as well. If you have a compulsory excess of £100 and a voluntary excess of £200, you'll have to pay the first £300 of every claim.

No claims discount (NCD)
NCDs reward you for not making claims. For each claim-free year (typically up to around four or five years) you'll receive a discount on your premium. Maximum discounts hover around 65 per cent. A claim will reduce your NCD unless you have built up only one or two claim-free years. In this case, you'll probably lose it altogether.

Security devices
Not all security systems qualify for a discount. Insurers often specify that the device must be tested and approved by Thatcham - an organisation that tests security systems. Many new cars are fitted with Thatcham-tested alarms and immobilisers. But before buying anything, check with us to find out what discounts it offers and for what devices.

Driving courses
Young drivers, who often pay high premiums, can save money by taking a Pass Plus course. You have six training sessions within a year of taking your practical driving test, and when your instructor is happy with your standard of driving, you'll receive a certificate. Some insurers also offer discounts for other driving courses such as the Advanced Driving Test offered by the Institute of Advanced Motorists.

Other discounts
Lancaster Insurance will offer an introductory discount if you haven't had the chance to build up a no claims discount. Also, you can sometimes get money off if you have a particular job, such as a police officer, or are a member of an organisation such as a trades union.

New for Old
The maximum a policy will pay out when you make a claim is normally the market value of your car at the time it was damaged or stolen. New cars can lose up to 30 per cent of their value in the first year. So, if your car was stolen during this time and not recovered, or damaged beyond repair, you could end up with a lump sum that' s a lot less than the cost of an identical car.

You can avoid this potential problem by choosing a policy that offers new-for-old cover. This will replace your car with a brand new one if it's stolen or severely damaged within the first 12 months. But the level of cover varies. For example, most insurers provide a brand new replacement car if the cost of repair exceeds 50 to 60 per cent of the list price of the car at the time of the claim. But some policies (Eclipse from Summit, for example) use a figure of 70 per cent. Also, some insurers won't provide a new replacement car if you've done more than a specified number of miles. For example, the policy from The Direct Insurance Centre uses a limit of 12,000 miles, and Countrywide's Service Car policy has one of 10,000.

Courtesy Car
If you're dependent on your car, you'll want to know that you can get a courtesy car while your car is being repaired. You'll normally have to take out comprehensive cover to get a courtesy car - but don't assume that you'll definitely get one. Most of the policies we looked at provide one, but a handful don't - Direct Line's policy doesn't, and CGU Direct's Choice policy offers one only as an optional extra.

Check exactly what the insurance company means when it says it will provide a courtesy car. For example, Crowe only promises to provide one 'subject to availability' and Northern Star 'if possible'.

Foreign Travel
All policies will give you the legal minimum cover required in EU countries, but this is usually similar to our third party cover. If you want the same level of cover abroad as you do at home, you'll have to pay an extra premium with some policies. With others, your cover is automatically extended at no extra cost provided that you're travelling within the EU or any other country listed in the policy. Regardless of whether or not you get free cover, you should tell your insurer if you intend to take your car abroad.

No Claims Discount
Most policies state that an NCD isn't a 'no blame' discount. So even if you claim for something which isn't your fault, you can still lose your NCD if your insurance company has to pay out. There are some policies, such as Royal & SunAlliance's Motor Policy and the RAC's policy, that won't penalise you for an accident which isn't your fault.