How is car insurance calculated?

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While those who already drive with own car may already know this, I think this research may be beneficial to new drivers and people thinking of getting their first car like myself. 

When getting a car especially new drivers what you should also think about is "how much will this cost to insure". To help with that question, I have put a list together on how car insurance are calculated.


The amount you pay for your car insurance policy is a reflection of how likely an insurer thinks you are to make a claim, and how expensive that claim is likely to be.
Factors that affect how much you pay;
1. Your age
Age is one of the most significant ranking factors that insurers use. Generally, younger drivers have less experience at the wheel than older ones and so are statistically more likely to be involved in an accident.
This means that drivers aged between 17 and 25 generally face the highest premiums. The rub here is that it’s a factor you can’t change.

2. Your occupation

Certain occupations mean that you spend more time on the road, carry important equipment with you, or work in high-risk areas.
Due to the statistical nature of insurance pricing, occupations that are very similar can often have a noticeable difference in price.

3. The car you drive

As you’d expect, the kind of car you drive will have a large bearing on how much you pay for your insurance.
There are a few things you need to keep in mind when looking at this:

Value

The more expensive your car, the more it’d cost to replace if stolen or written off in an accident.
Pricier cars may also cost more to repair, particularly if they’re rare and have expensive spare parts.

Power

The faster and more powerful your car is, the more likely it is to be involved in an expensive accident. So generally, the larger your engine, the higher the insurance costs.

Modifications

If you modify your car to make it more powerful or to look different, you should inform your insurer.
It'll probably increase your premium, but if you don’t tell them, your cover could be invalid if you make a claim in future. 

Desirability

If you own a particularly desirable car, your insurer may consider you at greater risk of theft. Improving your vehicle’s security can help offset this – that or get an uglier car :) 

4. Where you live

Your postcode also has a bearing on the cost of car insurance.
If you live in a built-up area where the risk of accidents is generally greater, you’ll pay more. The same applies if you live somewhere with high levels of vehicle crime.
This can vary even between nearby postcodes. A car two streets away may have significantly higher prices because it’s near a particularly dangerous stretch of road, for example.

5.Security

Alarms, immobilizers or other built in security may help reduce your premium as it's likely to deter thieves.

In addition, where you keep your car when you're not using it will impact your premiums.
If your car is parked on the street it's more vulnerable to theft. But if you keep your car in a security monitored car park or secure garage, you may find your premiums are reduced. 

6. How you use your car

If you use your car for commuting, you’re likely to pay more for cover than if you keep your car parked at home during the week, as you’ll be driving more often and on busier roads.
Your annual mileage is also considered. After all, the more you drive, the more likely you are to be involved in an accident.

7. Your driving history and no claims bonus

Have you made any claims? Do you have any points on your licence? These are significant factors insurers will consider when calculating your premium.
When applying for insurance, you’ll be asked for details of any claims you made in the past five years. Even if you weren’t at fault, the claim will still probably push up your premiums to some extent.
If you haven’t made any claims for a year or more, you should have some form of no claim bonus unless you are a new driver. 

8. Your excess

This is because you’re shouldering a greater amount of the risk. Any potential pay-outs from your insurer are reduced, and low-value claims may be uneconomical for you.
On the other hand, if you choose no voluntary excess, an insurer will have to pay the full amount - minus compulsory excess - in the event of a claim. Therefore you could face a higher premium.

9. The type of cover you buy

  • third-party only
  • third-party, fire and theft
  • comprehensive
Third party-only offers the most basic level of protection, whereas comprehensive adds extra levels of cover.
You'd think that the higher the level of cover you go for, the more expensive your premiums would be, but this isn’t always the case.
It’s worth checking the price you’ll pay for each level of cover, as some drivers find they can get more for less!


There you have it. Hopefully this will be of use to you. 

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