If you’re a young motorist, you’re going to have to pay more for car insurance.
The cost of cover for the under-25s is higher than for any other age group. You may think that's unfair but unfortunately it's a fact that those aged 17 to 20 are hardest hit.
The average annual premium for men aged 17 to 20 is an eye-watering £4,006 while their female counterparts face an equally high average cost of £2,151.
These figues are taken from the latest quarterly Confused.com/Towers Watson Car Insurance Price Index, published in June 2011.
The good news, however, is that there are a number of steps you can take to keep your premiums under control and get the cheapest car insurance possible.
Here at Confused.com we’ve come up with a simple guide to show you how.
How car insurance prices are set
When you apply for a motor insurance policy, each insurer works out your premiums by looking at the following factors:
- How much cover you want
- How much of a risk there is of you making a claim – and how expensive that claim is likely to be.
It is the second factor that spells bad news for young new drivers: the statistics collected by pretty much every insurer show that drivers under 25 years old are more likely than any other age group to be involved in accidents and to make claims.
It may be that you are a very careful and reliable 20-year-old driver: but your insurer probably has no real way of knowing this, so instead it uses general information about your age, the vehicle you drive, where you live and so on, to set prices.
The trick for any motorist is to demonstrate to your insurer that offering you cover does not constitute a big risk.
So how can young drivers do this?
Cut the cost of motor insurance by cutting risk
Insurers like drivers who don’t have accidents and who don’t make claims.
For every year that passes without you making a claim, you build up a year’s worth of no-claims bonus. This essentially gives you a discount on the following year’s premiums – and once you’ve notched up five claim-free years’ driving, you could see your no-claims discount knock as much as 70 per cent off the cost of cover.
For young drivers, building up a no-claims bonus is a matter of time, although there is a way of speeding it up a bit. Some insurers offer what is known as a “bonus accelerator” policy. It may run for, say, 10 months rather than 12 (and is cheaper as a result), but after that period customers qualify for a full year’s no-claims bonus provided no claims have been made.
So in theory, you could have three consecutive accelerator policies lasting 30 months (two-and-a-half years) but qualify for three years’ no-claims bonus.
Not all insurers will accept an accelerated no-claims bonus, which could limit your options if you want to switch provider. It is not just accidents that can affect your future premiums: if you’re caught speeding or using your mobile phone, points on your licence have to be declared to your insurer and can also increase the cost of cover – another reason to drive responsibly.
Making a claim on your car insurance comes with strings attached, so it should not be done lightly.
You are likely to have an excess on your policy, which means the first part of the cost of any claim has to be met by you. Both voluntary and compulsory excesses can be imposed by insurers: as the term suggests, compulsory excesses are not optional.
These are more likely to be charged to younger drivers. You can set the level of voluntary excess you pay when you take out the policy, but the higher this is, the cheaper your premiums. As well as the excess, making a claim has a knock-on effect on your premiums in subsequent years. The fact you’ve claimed will mark you out as a riskier driver, and the cost of cover will rise as a result.
Where you park and the security measures you take with your vehicle can also play a big role in cutting car insurance premiums. Keeping your vehicle overnight off the street – in a garage or driveway – greatly reduces the risk of theft and even accidental damage. And it can also be worth fitting features such as alarms, immobilisers and tracking devices.
The more powerful and expensive your car is, the more it will cost to insure: powerful cars can go faster and cause more damage in accidents (which means claims cost more); and repairing or replacing a high-value vehicle will also add to insurers’ expenses. If you haven’t bought a car yet, check insurance quotes for the vehicles you are considering. And if you are struggling to afford premiums on your current motor, think about trading it in for a more modest replacement.
The same logic applies to making improvements to your vehicle: if you modify its engine to make it more powerful and faster, the cost of cover will increase. It might also be harder to sell the car on if it has been altered from its factory condition. Any change that affects the vehicle’s performance or attractiveness to thieves, for example, needs to be communicated to your insurer, and could end up costing you more. Modifications may help your street cred, but they will not help your bank balance.
If you are an inexperienced driver, adding a parent to your car cover as a named driver could bring down the cost: insurers may think this reduces the risk associated with your policy, even if the named driver isn’t going to be using the vehicle all that often. Beware, however, of putting this experienced driver down as the main driver in order to reduce premiums further still: if you lie to your insurer about who the main driver is, it might invalidate your policy, which could lead to you driving uninsured. If you are going to be using the car most, you have to say so on your application.
What you do for a living also has a bearing on the cost of cover. If one insurer gets a lot of claims from doctors, for example, it will put prices up for that group. When you are asked to give your occupation in the application process, there may be a number of options that apply to you (such as construction worker vs. builder, or writer vs. journalist).
Try getting quotes with each of the possible occupation descriptions to see if it makes a difference to the price. But bear in mind that if you choose an occupation that couldn’t reasonably apply to you – it would be unacceptable, for example, for a builder to put himself down as a solicitor – this is likely to be considered fraudulent, and your cover could be invalidated.
How to demonstrate you’re a good driver
In the absence of any evidence to the contrary, your insurer will assume you’re an average motorist for your age and gender etc and charge you accordingly. So how can you prove you’re a lower-risk customer who should be entitled to cheaper premiums?
Passing an advanced driving course such as Pass Plus can help convince some insurers that you are safer behind the steering wheel than your peers. Pass Plus shows you how to deal with a variety of situations and road conditions that you may not encountered as you were learning to drive or as part of your test. It will probably cost around £200 but your council may offer a discount.
There’s good news if you live in Wales, where all local authorities offer the course for just £20. But you must bear in mind that not all insurers will give you lower premiums as a result of a qualification like this – or the discount may not be worth the outlay. It is worth speaking to a few providers before you sign up for a course to see whether it will provide good value for money.
Of course, gaining extra skill behind the wheel isn’t just about cutting your car insurance premiums: it also means you are less likely to be involved in any accidents, and are generally safer on the road.
Insurers are increasingly targeting a new type of policy at young and student drivers which uses in-car technology to monitor their driving habits and set premiums accordingly. Customers have a black box fitted to their vehicle, and this collects data about factors such as what time of day the car is used (accidents are more likely to occur at night), as well as how the vehicle is driven.
So this system – sometimes called telemetrics or telematics – would punish a driver who accelerated and braked excessively, or who cornered too quickly, by increasing their premiums. Conversely, more careful drivers would receive a discount. This kind of policy is one way of showing that you are an above-average driver, and it’s certainly more immediate than waiting to build up a few years’ worth of no-claims bonus.
Cut the cost of insurance by adjusting your cover
As well as looking at the risk of you having an accident or making a claim, insurers set prices according to how much protection you want. This means there is scope for reducing your premiums by reducing your cover – although, as we explain below, these two factors are not always linked.
- Choose your policy type carefully
There are three types of car insurance policy: third-party, third-party, fire and theft, and comprehensive. (See our 30 second video here which it explains the differences.)
Third-party covers you for any damage you cause to other vehicles or road users, and third-party, fire and theft protects you for the same plus fire damage or theft, as you probably guessed. Comprehensive cover, on the other had, means you’re covered for any damage to your own vehicle or yourself if an accident was your fault, or if no blame could be apportioned. So third-party cover must be cheaper, right? Not necessarily.
Even though comprehensive offers a greater level of protection, it sometimes costs less, oddly enough. For example, if lots of young and high-risk drivers take out third-party policies (in an attempt to save money), insurers will start viewing anyone who opts for third-party insurance as a greater risk, and put up prices accordingly. If you are considering third-party cover as a cheaper alternative, make sure you also check the price of comprehensive cover: it may not be much more expensive, if at all.
On any claim you make, your insurer will deduct an excess: so if you have an excess of £200 and claim for repairs costing £1,000, your insurer will only give you £800 and you’ll have to foot the rest of the bill yourself. The amount of excess you’re willing to pay has a direct link to the potential cost of claims for your insurer: so the higher the excess, the cheaper the premiums. Each policy has two types of excess: compulsory and voluntary. Everyone has to pay whatever their compulsory excess, and younger drivers are more likely to face this cost. The level of voluntary excess, however, is up to you, and can be anything from £0 to £1,000 or more in some cases.
If you have a high excess of £500 or above, it means you are unlikely to find it worthwhile to claim for any minor damage to your car – it would be simpler and no more expensive to pay for the repairs yourself without involving your insurer. But this is not necessarily a great drawback: many people don’t bother claiming for small repairs not just because of their excess, but also because a claim is likely to result in higher premiums in future, and will mean the end of any no-claims bonus. Think carefully about setting your excess too high, however: if your car is badly damaged or written off, you could face a large bill. (See our 30 second video on how to make a claim.)
When you apply for cover, your insurer will ask you how many miles you drive each year, and this can have a big impact on your premiums. Remember, the less you drive, the less likely you are to be involved in an accident. Consider how you could use your car less: perhaps by commuting on public transport, or joining a car-share scheme. If you can cut your annual mileage, you could see the cost of cover falling significantly. (See how much you are spending on fuel, with our petrol price calculator.) Do your sums to see how the amount you save on insurance and fuel compares to the costs of using an alternative form of transport.
How to find the cheapest car insurance
There is a huge amount of competition in the car insurance market which is good news for consumers, as you are more likely to be able to find an affordable quote. But it would be hugely impractical for you to contact scores of companies, and go through application processes for each, in order to find the best deal. This is where online price-comparison services such as Confused.com step in. At Confused.com we can find quotes from as many as 103 different insurers: all you have to do is complete one simple form, which should take just a few minutes. Then you’ll be presented with a list of the cheapest car insurance quotes tailored for you.
This is especially useful for young drivers, as certain insurers try to avoid taking on such customers and set hugely inflated premiums for any under-25s who apply. If you happened to contact just one of these firms rather than a panel of many insurers, you could get the misleading impression that car insurance would be totally unaffordable. Another benefit of comparing prices with our service is that you can instantly check what effect any changes in cover can have on your premiums: for example, you can ask for quotes with high or low excess and compare the difference.
The way you pay for car insurance can also have an effect on the cost: if you choose to pay monthly to avoid paying your year’s premium in a lump sum upfront, your insurer will charge you interest for the privilege. In effect, you will be borrowing the premium from your provider as a 12-month loan, and paying back your insurance cost plus interest every month. Paying upfront is cheaper – and if you don’t have enough spare cash, it could be worth taking out a 0 per cent credit card rather than relying on your insurer’s deal.
How to keep your car premiums low
Saving money on car insurance is not a one-off event: you have to follow the same procedure every year when your policy comes up for renewal. Just because you’ve found a cheap insurer this year doesn’t mean that company will be the best value next year.
So when you get your renewal letter 11 months or so after taking out your policy, use this as a spur to shop around again for a better deal.
Don’t be alarmed if your renewal quote from your existing company is high: this doesn’t necessarily mean that you’ve become a higher risk, or that prices for everyone have gone up.
Insurers tend to set renewal quotes high because they know that most people don’t bother to shop around. Make sure you don’t fall into their trap.
Watch our handy 30-second video guide on car insurance for young drivers.