Car insurance is a legal requirement in the UK. But despite the fact we’re required to have it, there’s a lot of confusion around what some words actually mean when it comes to car insurance. So, to break it down for you, here are some explanations of the most common acronyms and jargon you might come across when considering the different types of car insurance.
TPO (Third party only) - Third party only is the minimum level of cover you can have in the UK. If you are in an accident, TPO covers the other vehicle, and its driver, for any damage. Any damage to yourself, or your own vehicle, will not be covered.
TPFT (Third party, fire and theft) - This is essentially the same as TPO cover, however it will also cover your vehicle for damage or loss following a fire or theft.
SD&P (Social, domestic and pleasure)- When taking out car insurance, your provider will ask you how the vehicle will be used on a day to day basis. If you will not be using your vehicle for business purposes or commuting to a single place of business, you should answer SD&P – this tells your insurer that you will largely be using it for socialising, and trips to the supermarket.
IPT (Insurance premium tax) - IPT is the tax that is paid on insurance premiums. The current rate of IPT is 12%, however some car insurance (such as policies covering disabled vehicles) can be up to 20% IPT.
Understanding insurance terms
Approved repairer – If your vehicle is damaged during an incident, your insurer may supply a list of ‘approved repairers’. If your insurer has specified that you must use an approved repairer, you should adhere to this when arranging for your vehicle to be fixed, otherwise you may not be reimbursed for the costs.
Excess – An ‘excess’ is the initial amount you must pay if you are making a claim on your insurance policy. You can choose to increase or decrease your excess, and this is likely to have an impact on your premium.
Exclusion – An exclusion is something that is not covered under your insurance policy. Exclusions are detailed in the policy wording.
Indemnity – This is the act of an insurer restoring you to the exact same financial position you were in before a loss was experienced. For example, if you crash your vehicle and subsequently write off £5,000 worth of car, your insurer will indemnify you for the £5,000.
Lapse – If you choose not to renew your motor insurance, it will lapse from the date specified on your renewal documents. If your policy has lapsed, this means that there is no cover being provided by the insurer.
Limit of indemnity – Your policy documents will specify a ‘limit of indemnity.’ This is the maximum amount that will be paid out by your insurer in the event of a claim.
Material fact – Anything that affects an insurer’s assessment of the risk when offering an insurance quotation is considered a material fact. For example, if you have six points on your driving licence.
No claims Bonus – This is a bonus offered by insurers which correlates to the number of years you haven’t made a claim on your car insurance. For example, if you haven’t made a claim for four years, you will accrue four years no claims discount.
Period of insurance– This is the time period that your insurance policy is valid for. The period of insurance runs from the date the policy is started, to the date the policy lapses.
Renewal– When your policy comes to the end of the initial term (most motor insurance policies will be valid for 12 months), you then have the option to either renew your policy, or move to a different insurer from the renewal date. It’s important to ensure your cover is continuous if you choose to move providers.
Underinsurance – Underinsurance occurs when you insure your vehicle for less than its actual value.