How car insurance is calculated

Understand how insurers calculate how much your car insurance premium should cost.

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When shopping for car insurance, insurers require a whole load of information about you and your car in order to calculate your premium. This information is based on a number of key factors. In this guide, we break down each factor to give you the lowdown on how they can affect the price of your car cover.

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How is car insurance calculated?

Essentially, a car insurer will base your car insurance on how much of a risk you are. All insurers will look closely at a number of factors about the driver and the vehicle which include:

  • Age and driving experience
  • Location
  • Car insurance group rating
  • Level of cover
  • Excess
  • Occupation
  • Where the vehicle is kept and security
  • Use and mileage
  • Car make and model
  • Claims history

Age and driving experience

Age is a big factor that insurers look at. Most insurers will assume that young drivers will be new to driving and have little experience. Young drivers are therefore generally considered more at risk of being involved in an accident and making a claim.

Those who have been driving for many years will typically be older and pose less of a risk on the roads. Due to the increased experience and lower risk level, insurance may be cheaper. In fact, drivers aged over 50 will enjoy some of the cheapest car insurance on the market.

While drivers aged between 17-24 are considered young, older drivers aged over 70 are also considered more of a risk on the roads even with many years of driving experience. This is because health issues may start to develop in an older person, which could have a knock-on effect on their driving ability and reaction times. This can mean an insurer increases the car insurance premium to match the increased risk.

Location

Where you live will affect your insurance premium. An insurer will look at your location’s level of crime, how quiet or busy the roads are and how many claims have been made for that area. For example, a person living in the countryside may generally be driving on less busy roads compared to drivers living in a big city. Their car may also be less likely to be stolen in a smaller town or village.

Car insurance group rating

All new cars in the UK are given an insurance group rating to help insurance providers decide how to calculate car insurance premiums. The rating essentially tells insurers which cars are the most expensive cars to cover as well as which ones are the cheapest to cover. The group rating is based on a number of factors such as:

  • The original sale price
  • Performance
  • Security level
  • The price of the most common parts
  • The price of repair work
  • The autonomous emergency braking system

There are 50 different car insurance groups into which cars can be allocated. The lower the rating, the cheaper that car is to insure.

Be aware that a car’s rating could change. For example, if there’s evidence that a particular model has been involved in a significantly high number of accidents, that car’s insurance group rating could increase.

Level of cover

There are three levels of car insurance:

  • Third party. This is the minimum level of cover needed to be on UK roads. You’ll be covered for damage to third party vehicles or property if you cause an accident. However, it won’t offer any cover for damage to your own car.
  • Third party, fire and theft. This cover level offers the same as third party with the addition of protecting your car from fire damage or theft.
  • Comprehensive. This is the highest level of cover available and offers the same protection as the lower levels in addition to offering cover for your own car if damaged or vandalised.

Contrary to what you might expect, comprehensive cover can be cheaper than third party or third party, fire and theft so it’s always worth checking. This is because of the risk profile of many people who get third party.

Excess

Your insurance excess is the amount of money you will need to pay towards a claim. Your insurer won’t pay out for a claim that costs less than this amount. A compulsory excess amount might vary depending on the age of your car and your driving experience.

A voluntary excess is usually added on top and can normally be set by you when taking out a policy. You’ll have the option of adding or increasing a voluntary excess which should lower your premium.

Be careful about making an excess too high, as it could leave you out of pocket if damage occurs.

Occupation

You might be wondering what your job has to do with the car insurance but insurers make assumptions about people with certain occupations.

For example, a professional footballer may expect to pay increased car insurance premiums as they are more likely to drive a fast, high performance or sports car and drive their car in a certain way.

That said, slight differences in your job title could make a big difference to your car insurance premiums so it’s worth getting quotes using a variety of job titles that specifically apply to your occupation to see if you get any cheaper quotes. You’ll need to be honest though as you risk invalidating your insurance if an insurer believes you’ve given false information.

Where your vehicle is kept and security

An insurer will want to know how secure your car is. Security features on a car such as an alarm or an immobiliser could make it hard for thieves to steal. This should lower the premium. If on the other hand, a car doesn’t have these security features, it might be more of a target for thieves and therefore premiums could increase.

The place your car is stored at night will also be of interest to insurers. Cars kept in a locked garage or on a private driveway pose less of a risk than those parked on a busy street.

Use and mileage

How you use your car will affect your premium. Some may only use their car for short journeys and drive during quieter times of the day. Others may use their car to commute a long distance to work and for occasional business trips.

The main categories you’ll be able to choose from when getting insurance include:

  • Social, domestic and pleasure
  • Social, domestic, pleasure and commuting
  • Business use
  • Commercial travel

Make sure you are accurate in describing how you use your car, as using it any differently could mean you’re not covered or a claim is rejected.

Generally, people that spend more time on the road and cover more miles are likely to have to pay more for their car insurance. That’s because their risk of being involved in an accident increases as they drive more miles.

As you might expect, low mileage drivers are likely to pay less for their premium.

Try to provide a realistic annual mileage when buying car insurance to ensure you aren’t paying more because of an overestimation.

Car make and model

It stands to reason that the more a car is worth, the higher the insurance premium as it will likely cost more to repair or replace than a car worth less. For example, high performance, imported or sports cars may be the most expensive to insure compared to a standard family car because they may be more appealing for would be thieves. On the other end of the spectrum are smaller, safe cars, which will be cheaper to repair or replace and less likely to be stolen. These cars tend to enjoy some of the cheapest insurance premiums out there.

Claims history

Making a claim on car insurance will almost certainly affect the price of your premiums and mean it unfortunately increases. That is why an insurer will want to find out how many claims you have made in the past, usually within the last 3-5 years to see how likely you are to make another claim.

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