Car insurance terms – some frequently thought questions

What car insurance policies are available?

There are three types of car insurance policy: third party only; third party, fire and theft and comprehensive. It’s up to individuals to decide what would be best for them.

Struggling to decide? Then find out more in ‘What type of car insurance should I get?’

What is third party car insurance?

This is the most basic level of cover and is the minimum car insurance required by law. If an accident happens between two or more cars, then the insurance provider will pay out damages to the owner of the other vehicle but not to the policyholder for their vehicle (if it was shown to be a fault claim).

Find out more at Third party car insurance.

What is third party, fire and theft insurance?

This provides the same level of cover as ‘third party only’ but it can also cover policyholders if their car is damaged due to fire or if it is stolen.

Find out more in our simples guide: Explaining third party, fire and theft car insurance.

What is comprehensive insurance?

This is the highest level of cover available and insures the policyholder’s car as well as any third parties involved in an accident. It’s sometimes called ‘fully comprehensive insurance’ – read our guide for more.

What does ABI stand for? 

ABI stands for the Association of British Insurers, they provide advice to consumers as well as work with the government and policymakers. Their aims are to promote clarity, high standards and best practice within the insurance industry. The ABI also make up part of the panel that recommends insurance group ratings.

What does FCA stand for?

FCA stands for the Financial Conduct Authority, they used to be called the Financial Services Authority. The FCA regulates firms that provide financial services to consumers – such as car insurance providers.

What’s a loss adjuster?

Loss adjusters are people who investigate claims for insurance companies to make sure they’re all above board and legit and that insurance providers aren’t paying out more than they should or for anything they shouldn’t.

What’s an underwriter?

These are the people or companies who create insurance policies and cover. They decide whether someone’s a good risk and worth insuring, they also work out the cost of premiums for insurance companies

What is an ‘act of God’?

It’s not literally divine or even magic, essentially, it’s an event or accident that happens without human intervention. It usually relates to natural disasters such as storms or flood.

What is betterment?

If a car is repaired and is worth more than it was before the damage occurred, then the policyholder might be asked by their insurance provider to pay a bit more towards the cost of those repairs – a betterment charge. 

What is DOC cover?

DOC stands for ‘driving other cars’ – policyholders aren’t automatically entitled to drive someone else’s car (even if they have comprehensive cover). So it’s safer to find out whether DOC is included in a policy before using someone else’s car.

If a car insurance policy does include DOC, then it will be on a third party basis - not on the full level of cover provided by the insurance policy.

What is a certificate of insurance?

This is the legal proof that a driver is insured. It shows what car is covered, who is allowed to drive it and what it can be used for such as social, domestic and pleasure or commuting and business use for example.

What is a policy schedule?

This is part of the insurance contract and sets out details of your policy. It shows the period of insurance, the car details and information about the policy excess.

What is the period of insurance? 

These are the dates that an insurance policy is valid for. 

What is a premium?

This is how much an insurance policy will cost the policyholder. This is usually paid via direct debit either monthly or annually.

Find more information about how premiums are calculated here.

What is car insurance excess?

This is how much that has to be paid by the policyholder if they want to make a claim. It’s usually made up of two parts, compulsory and voluntary excess.

What is compulsory excess?

This is the amount of money that policyholders need to pay in order to make a claim. It’s usually based on things like age, experience and the type of car. It’s also non-negotiable.
If you complete a car insurance quote on our site, you’ll see a variety of different compulsory excess offered by insurance providers. If you specify how much excess you are willing to pay, we will filter your results to show insurance policies based on your chosen excess and we’ll order by policy price.

What is voluntary excess?

This is the amount the policyholder chooses to pay in the event of a claim, it’s usually decided when the policy is first agreed. Having a higher voluntary excess could bring down the cost of premiums (but bear in mind that it needs to be paid if a claim is made, so make sure it’s affordable). It’s a fine balance, for more information about excesses, use our guide ‘Is a higher excess better?’ The voluntary and compulsory excesses combined, make up the total excess the policy holder will have to pay in the event of a claim. 

What is a statement of fact?

This is a form that shows all the information provided by the policyholder to their insurance provider, it forms part of the insurance contract.

What is a claim?

A claim is the formal application made to an insurance provider due to an event such as an accident, when the policyholder wants to recover the cost of damage to themselves or their car. 

What is a no claims bonus and no claims discount?

A no claims discount (NCD) and bonus (NCB) are the same thing. It is a discount applied by some insurance providers, when no claims have been made. The discount is calculated annually at renewal. The policy will has to have run for a full year for the policy holder to earn the year’s no claims discount.

For more information about no claims discount.

What is an approved repairer?

It’s pretty much as it sounds – it’s someone that the insurance provider recommends to fix the damage to a car. Policyholders don’t have to use an approved repairer but if they don’t they might have to pay an additional charge. Also if you do use an approved repairer, you’ll typically get an extended guarantee (usually 3 years) on the repairs carried out.

What is a settlement?

This is the amount of money an insurance provider is willing to pay out if a claim is successful. 

What is car market value?

This is how much it would cost to replace the car named in an insurance policy with one of a similar age, condition and mileage should it need to be written off. 

What is a fault claim?

This is an accident where the policyholder is to blame. However, if a policyholder has an accident with another vehicle and cannot recover costs from them (such as if they hit your car and drove off), then that also counts as a fault claim (unfair but true). The opposite is a non-fault claim.

What is an endorsement?

This is an extra clause that will change the standard cover provided by the insurance policy.

What is indemnity?

This ensures that a policyholder doesn’t lose out – so they’ll be in the same financial position as they were before their car was damaged. 

What is a named driver?

A named driver, is an additional driver who has been added onto a car insurance policy. This could be anyone who is going to be driving the car, for example a spouse or a dependant. For more information read our guide to named drivers. 

What is an uninsured loss recovery?

Sometimes shortened to ‘ULR’, this protects the policyholder against the cost of uninsured losses from a third party where it was the third party’s fault, for example the recovery of policy excess. 

What is insurance premium tax?

This is a tax on insurance policies and is automatically included in the premium price, find out more in our Guide to insurance premium tax (it’s also sometimes referred to as ‘IPT’.)

What is telematics?

More commonly known as ‘black box insurance’, telematics refers to equipment that monitors driving. The information is relayed back to the insurance provider who may use it to work out premiums. It’s designed for young drivers with little or no driving experience, allowing insurance providers to build a profile of the driver’s ability and accurately tailor the premium. Find out even more answers to lots of ‘frequently thought questions’ on telematics in our guide to black box insurance.

Still stuck?

If you’ve still got a few unanswered queries, then don’t worry – car insurance is one of those subjects that we can talk about until we’re blue in the face. So, why not visit our car insurance hub, where you’ll hopefully find the answers to all your vehicular vexations and when you’ve done that – make sure you’re getting the right deal for you and comparethemarket.com