How is car insurance calculated?
From your profession to where you live, we take a look at some common factors insurance companies use to set the cost of your car insurance.
The amount you pay for your car insurance policy reflects how likely an insurer thinks you are to make a claim. It also reflects how expensive that claim could be.
1. Your age
Age is one of the more significant factors that insurers look at when they calculate car insurance policies.
Generally, younger drivers have less experience at the wheel than older drivers 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 prices. The rub here is that it’s a factor you can’t change.
It's widely believed that drivers who hit 25 years of age instantly get lower insurance prices.
This isn’t always the case, but there are other ways for young drivers to lower their costs
This includes using black box technology, which can reduce your costs if you’re able to consistently drive safely.
2. Your occupation
Certain occupations mean that you spend more time on the road, drive more at night, carry important equipment with you, or work in high-risk areas.
While others, such as those that don’t involve much driving and are relatively risk-free could be considered as occupations for cheaper car insurance.
Due to the statistical nature of insurance pricing, occupations that are similar might have a noticeable difference in price.
For example, being a ‘company director’ may turn out to be more expensive than ‘director of a company’.
That’s why it’s important to be as accurate as you can when describing your occupation.
It’s also worth checking the cost of a policy against different job titles.
It’s illegal to put false information down. But if you’re choosing a job title that still reflects your work, it could cut the cost.
For more information, check out our guide on occupations and car insurance.
3. The car you drive
As you’d expect, the kind of car you drive could have a large bearing on how much you pay for your insurance.
There are different insurance rates by car. If it’s a brand new sports car, for example, the cost of repairs or replacement could be far higher than a bog-standard car.
There are a few things you need to keep in mind when looking at this:
The more expensive your car, the more it could cost to replace if stolen or written off in an accident.
Pricier cars might also cost more to repair, particularly if they’re rare and have expensive spare parts that are hard to source.
But don’t assume that just because your own car isn’t worth much, it’ll 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.
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. Choosing a car with a smaller engine is one way to cut your costs.
If you modify your car to make it more powerful or to look different, you should inform your insurer straight away.
It'll likely increase your costs. But if you don’t tell them, your cover could be invalid if you make a claim in future.
Most insurers have a list of modifications they’ll accept without putting the price of your policy up, and those which will cost more.
If you’re making extensive modifications, it may be worth checking out the cost of insurance from a specialist insurer too.
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If you own a particularly desirable car, your insurer may consider it a 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 and if you move house you’ll need to tell your insurer straight away.
If you live in a built-up area where the risk of accidents is generally greater, you’ll likely pay more. The same applies if you live somewhere with high levels of vehicle crime.
If you live in a rural area with low crime, the cost of your insurance could be lower.
This could vary even between nearby postcodes. A car two streets away might have significantly higher prices because it’s near a particularly dangerous stretch of road, for example.
Alarms, immobilisers, or other built-in security gadgets could help reduce your costs as it's more likely to deter thieves.
Being part of a neighbourhood watch scheme may also have an impact on your insurance cost.
Where you keep your car when you're not using it could also affect the way your insurance is calculated.
If your car is parked on the street, or away from your home, it's more vulnerable to theft.
But if you keep your car in a security monitored car park or garage, you could find your costs come down.
6. How you use your car
If you use your car for commuting, you’re might pay more for cover than if you keep your car parked at home during the week.
This is because you’ll be driving more often and on busier roads when commuting.
Your annual mileage is also considered. After all, the more you drive, the more likely you are to be involved in an accident, and the higher the risk of the car needing repairs.
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 getting a car insurance quote, 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-claims bonus (NCB).
Most insurers tend to accept up to five years of NCB, which could help reduce your costs.
If you’ve been convicted of insurance fraud in the past, it’s likely to be a lot harder for you to get a new policy.
But there are some specialist insurers who might be able to help.
8. Your excess
The more you agree to pay as a car insurance excess, the less your monthly or annual insurance tends to cost.
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.
But this is only worth doing if you could comfortably pay the excess if you had to.
On the other hand, if you choose no voluntary excess, an insurer would have to pay the full amount - minus compulsory excess - in the event of a claim. Therefore, you might have to pay more.
You’re also likely to pay less if you choose to pay your insurance in one lump sum if you can.
9. The type of cover you buy
There are three levels of car insurance cover:
Third party-only offers the most basic level of protection, whereas comprehensive adds extra levels of cover and is the most robust policy you can buy.
While you might think that the higher the level of cover you go for, the more expensive your prices would be, this isn’t always the case.
It’s worth checking the price you’ll pay for each level of cover, as some drivers might find they can get more for less!
But always make sure you’ve fully read the policy conditions before you pay as you don’t want to end up with insurance that doesn’t pay out.
10. External factors pushing car insurance premiums up (or down)
No matter what you drive, or when, there will be some things that impact the price you pay that you can’t control.
Our quarterly car insurance price index has more details about pricing across the UK.
This year, for example, prices have been falling because of the coronavirus pandemic and the fact we’re all driving less.
However, in the past prices have shot up because of changes to insurance taxes.