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How is car insurance calculated?

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The top 10 factors which affect car insurance prices

It’s a good idea to know the factors which are used by insurers to set policy costs. That way you can ensure your own cost of car cover is as low as it can be.

Ultimately, the amount charged by an insurance company in motor premiums is a reflection of how likely a driver is to make a claim. And how expensive that claim is likely to be.

Bear in mind: Different insurers treat these factors in different ways. So it’s a good idea to shop around and get car insurance quotes from a wide range of providers.

1. Your age

A young male driver

Unless you’ve made claims or have points on your licence, an insurer can’t tell whether you’re a cautious or reckless driver. So it uses statistical data from previous customers to calculate what kind of risk you might pose.

Age is a significant factor. Statistics show that young drivers are more likely to be involved in accidents and make claims than other age groups.

Those aged between 17 and 25 generally face the highest premiums. You can’t change your age, but younger drivers can take steps to keep their car insurance costs under control.

2. Your occupation

What you do for a living can also have an impact on the cost of your premiums. Insurers’ figures may show that certain jobs carry with them a greater risk of claims.

3. The car you drive

A swanky modified car

The vehicle you’re insuring has a large bearing on your insurance premiums, as you’d expect.

Value: The more expensive your car, the more it’d cost to replace if stolen or written off in an accident. So the higher the premiums.

Pricier vehicles may also cost more to repair, particularly if they’re rare, and have expensive spare parts. But don’t assume that just because your own car isn’t worth much, it will be cheap to cover… Insurance isn’t just for damage to your own vehicle; it also protects other road users against accidents you might cause.

Power: The faster and more powerful your car is, the more likely it is to be involved in accidents. And more costly those accidents are likely to be. So vehicles with larger engines cost more to insure.

If you modify your car to make it more powerful, you should inform your insurer. It’ll probably increase your premiums. But if you don’t tell them, your cover could be rendered invalid if you come to make a claim.

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.

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 greater, you’ll pay more. The same applies if you live somewhere with high levels of vehicle crime.

5. How you use your car

A busy road at rush hour

If you use your vehicle for commuting, you’re likely to pay more for cover, as you’ll be driving more when the roads are busy. Your annual mileage also has a bearing. After all, the more you drive, the more likely you are to be involved in an accident.

6. Your driving record and no-claims bonus

Have you made any claims? Do you have any endorsements on your licence? These are significant factors in calculating the cost of car insurance. When applying for insurance, you’ll be asked for details of any claims 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-claims bonus  (NCB). Most insurers will accept up to five years of NCB, which can result in discounts.

7. Your excess

Working out car finances

The higher the voluntary excess  you agree to, the less your insurance will cost. This is because you’re shouldering a greater proportion of the risk. Any potential payouts from your insurer are reduced, and low-value claims will be uneconomical for you.

Conversely, 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 your premium will be higher.

8. The type of cover you buy

Comprehensive insurance is normally more expensive than third-party only or third-party, fire and theft. This is because your insurer will potentially have to pay out in a greater range of circumstances.

9. Who’s insured to drive your car

A yound driver with an older man

The named drivers on your insurance policy can cause premiums to rise and fall. If you’re an experienced driver, adding a young driver to your policy – such as your son who’s just passed his test – can cause the cost to rocket. Conversely, if a young main driver adds a more experienced relative to their policy, it can reduce the costs.

10. Car insurance is no longer priced on your gender

Statistics show that women are less likely to be in a serious accident than men, and that the claims they make are less expensive. This has long been reflected in lower premiums for female drivers in general. This ban on gender pricing came into effect on 21 December 2012. This caused insurance premiums to rise chiefly among younger women.

However, the European Court of Justice has issued a ban on using sex as a factor in setting premiums. This came into effect on 21 December 2012, and caused car insurance to rise chiefly among younger women.

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