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How is car insurance calculated?

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.

From your profession to where you live, here's a round-up of some common factors insurance companies use to set the cost of your car insurance. This should help you determine how much you pay, and how you can reduce your car insurance costs.

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How is my car insurance premium calculated?

Some of the factors insurers look at when they're calculating your car insurance premiums are:

  • Age
  • Occupation
  • The car you drive
  • Where you live
  • How secure you car is 
  • How you use your car
  • Your claims history and no claims bonus
  • Your excess
  • What type of policy you choose

Insurance is mostly based on risk data. Usually an insurer looks at each of these factors and thinks about how much risk you pose when calculating your premium. 

The more risk you are to the insurer, the higher your premium might be.

For example, if your annual mileage is high you might be more likely to have an accident because you're on the road more often. 

Your age can affect your premiums too. Typically younger drivers have higher premiums as they don't have as much driving experience as someone older. 

We are going to look at each of these factors in turn and see how they could affect your premiums.

How does age affect my car insurance?

Age is the most significant factor that insurers look at when they calculate car insurance policies.

Generally, younger drivers have less experience at the wheel than older drivers. So they're 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.

How does my occupation affect my car insurance?

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.

Other occupations may not involve much driving and so might be seen as relatively risk-free.

Due to the statistical nature of insurance pricing, similar occupations could 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.

How does my car affect my car insurance?

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's cheap to cover.

Insurance isn’t just for damage to your own car - 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 a 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's likely to 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 accept without putting the price of your policy up, and those which should 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 car's security can help offset this – that or get an uglier car.

How does my postcode address affect my car insurance?

Your postcode also has a bearing on the cost of car insurance and if you move house you should tell your insurer straight away.

If you live in a built-up area where the risk of accidents is generally greater, you’re likely to pay more. The same applies if you live somewhere with high levels of car 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 a few streets away might have significantly higher prices because it’s near a particularly dangerous stretch of road, for example.

How does security affect my car insurance?

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 costs.

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.

How does the way I use my car affect my car insurance? 

If you use your car for commuting, you might pay more for cover than if you keep your car parked at home during the week.

This is because you're 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.

How does my driving history and my no-claims bonus affect my car insurance?

Have you made any claims? Do you have any points on your licence?

These are significant factors insurers consider when calculating your premium.

When getting a car insurance quote, you should be asked for details of any claims you made in the past 5 years.

Even if you weren’t at fault, the claim should still increase your car insurance costs 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 5 years of NCB, which could help reduce your costs.

Does having points on my licence affect my car insurance?

Yes, having points on your licence is likely to make your car insurance more expensive.

Your insurer might see you as a potentially risky customer, which means you may end up paying more than normal for your cover. As well as having less insurers willing to cover you.

How does my excess affect my car insurance?

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 payouts 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.

If you choose no voluntary excess an insurer would have to pay the full amount - minus compulsory excess - in the event of a claim. So, you might have to pay more.

You’re also likely to pay less if you choose to pay your insurance in a lump sum if you can.

How does the type of cover I buy affect my car insurance? 

There are 3 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'd 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.

There's also the option of temporary or short-term car insurance, where you can get cover from 1 hour up to 28 days. This is most useful during emergencies, when borrowing someone else’s car or when you need more time to compare insurance quotes.

What else could affect my car insurance costs? 

No matter what you drive, or when, there are 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.

In 2020, for example, prices were falling because of the coronavirus pandemic and the fact everyone was driving less.

But, in the past prices have shot up because of changes to insurance taxes.

What factors make car insurance cheaper?

Luckily, there are a few things you can do that could make your car insurance cheaper:

  • Be accurate with your annual mileage 
  • Invest in car security
  • Increase your voluntary excess 
  • Downsize your car
  • Pay for your insurance in a lump sum

Read our guide on how to get cheaper car insurance premiums for more handy tips.