The law

First things first. It is against the law to drive your car (or to allow anyone else to drive it) on a public road in the UK unless you have a valid insurance policy. You are also not permitted to drive your car without insurance in any other public place (though quite what the law makers had in mind here is anyone's guess. Trafalgar Square?) To be specific, the Road Traffic Act requires all drivers to insure themselves against any liability they incur from damage to other people's property or any injury caused by them to another person.

It is estimated that over one million people in the UK drive without insurance or, to put it another way, around one in twenty drivers. What this means is that every law abiding citizen is subsidising his non law abiding cousins to the tune of around £50 a year. And of course that's not all. The chances are that if you run into an uninsured driver (or he -and it normally is a he - runs into you) they'll drive off rather quickly leaving you to pick up the tab.

Types of car insurance policy

There are two basic types of car insurance policy:

Third party

Strictly speaking there is a difference between a third party car insurance policy and a third party fire and theft policy. However, since it is increasingly difficult to obtain a pure third party insurance policy any more we will lump the two together under the label 'third party' policies. A third party policy would usually cover you against the costs of:

- injuring other people on the road whether passengers or pedestrians

- any damage caused by your vehicle to someone else's property

- any damage caused by anything attached to your vehicle such as a trailer or caravan

- any damage to your vehicle caused by fire or replacing your vehicle if it is stolen

A third party car insurance policy is the minimum level of cover acceptable under UK law.

Comprehensive

As the name implies, comprehensive car insurance policies cover rather more than third party policies. Typically under a comprehensive policy you would be covered for:

- the cost of injuring other people including others in your vehicle

- any damage caused by you to someone else's property

- any damage caused by anything attached to your vehicle (trailers, caravans etc)

- theft or fire damage

- the cost of replacing items stolen from your vehicle or otherwise damaged

- the cost of repairs to your vehicle caused by 'accidental damage' (for instance a tree falling on your car in a storm)

- compensation and medical expenses if you are killed, injured or handicapped while driving (in certain cases this cover also extends to others in the car as well)

Most people think that comprehensive insurance cover is always far more expensive than third party cover. Curiously this isn't always the case. If you live in a city, park your car on the road and don't have a no claims bonus there probably won't be much difference in price between the two types of policy (see our 'Cost' page if you want more on how insurance companies price policies). Anyway we don't subscribe to the view that cost is the only factor that determines what sort of insurance cover you should buy. You may not think it likely that you will be seriously injured while driving. Mercifully it isn't statistically that likely. But it does happen. And the financial consequences (quite apart from the personal ones) can be devastating. So maybe comprehensive cover is worth it even if it does cost a bit more. Consider also whether you can afford to have your own car repaired if you cause an accident and you only have third party cover.

There are several other points you should be aware of in the context of deciding what type of motor insurance cover you want. If you have been driving for a while and have a good record of not making claims you should investigate the possibility of taking out what is known as a Protected Discount Policy. For a relatively small addition cost you can effectively insure your no claims bonus. Under a typical Protected Discount Policy you are entitled to make one or two claims within a three to five year period without any impact on your no claims discount.

Another variation you might want to know about is the so called Guaranteed Asset Protection Policy. These policies basically pay out a sum of money if your car is a complete write off. They are particularly suitable for people who have financed the purchase of their cars with a loan.If the car is written off the amount outstanding on the loan is likely to be greater than the value of the car. A Guaranteed Asset Protection Policy would make good the difference. But these policies are not just suitable for those with loans outstanding on their vehicles. A standard insurance policy will normally only pay out a sum equal to the market value of your car when it is written off. Under normal circumstances this would not be a sufficient amount to enable you to replace your car with a new, equivalent model. So you might want to consider a Guaranteed Asset Protection policy to protect you against this occurrence.

What to do if you are involved in an accident?

If you are involved in an accident where there is damage to one or more vehicles and, particularly, when someone is injured you should follow the following procedures:

- first things first, call an ambulance if necessary. Call the police if anyone's property has been damaged. You have 24 hours in which to do this

- give details of your insurance company to the other party involved in the accident

- DO NOT ADMIT LIABILITY even if you think the accident may have been your fault. This may sound callous but it isn't. Your insurance company will be better equipped to handle the procedural aspects of the claim than you are. Furthermore you may be shaken up and say something you later regret. Equally there may be factors of which you were unaware at the time of the accident which may impact on the claim

- take detailed notes of what happened. Draw a picture of the scene. Make sure you write down as much as you can remember. It may be several weeks or months before the claim is settled. Unless you are blessed with an extraordinarily good memory you won't remember precisely what happened later

- tell your insurance company about the accident even if you don't intend to make a claim

- if you do intend to make a claim don't have your vehicle repaired until you have got the go ahead from your insurance company to do so. They may be able to organise to get the repairs done more cheaply than you can and they are very likely to want to take a look at the damage caused to your vehicle before a mechanic gets his hands on it

- if your vehicle is a total write off your insurance company will make a one-off payment to enable you to buy another (see also 'Guaranteed Asset Protection Policy' above).

- if you incur any additional expenditure such a the cost of hiring a car while yours is being repaired, keep receipts. You may be able to reclaim these from your insurance company

What to do if your car is stolen?

If you think your car has been stolen inform the police immediately. Then let your insurance company know. Equally let both parties know if you find your car again. It may take a while for the insurance company to settle a claim for a stolen car since they will need to allow the police to finish their investigation. Again keep receipts for additional expenditure incurred during this period (eg the costs of hiring a car). You may be able to reclaim these from your insurance company. You may also be able to make a claim for the replacement value of any items that were stolen along with your car. So check the policy wording.