How is Car Insurance Calculated?

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31 Jan 2024

How is car insurance calculated?


The first question most people have when considering which car insurance policy to go with is: “How much will car insurance cost me?”

When working out how to calculate car insurance premiums, insurers spend a lot of time trying to get it right. There are lots of factors involved in figuring out how much of a risk you are on the road and each one plays a part in determining what price you end up paying.

When you apply for car insurance quotes, you’ll be asked to provide details about yourself, your car, your driving history, and more. All of the details you provide will be taken into consideration, but some of them will be more important than others in deciding the final cost of your car insurance.

These are twelve of the biggest factors that go into calculating what you pay:

  • Your age
  • The make and model of the car
  • Your address
  • Your occupation
  • Your annual mileage
  • The type of cover you want to take out
  • Your driving history, including any no-claims discounts
  • Where you park your car overnight
  • How much voluntary excess you’re willing to pay
  • If you have modified your car
  • Whether or not you’ve added any named drivers to your policy
  • Whether or not you’ve included any add-ons to your insurance

These criteria and more are all taken into account when working out how to calculate car insurance. Let’s take a look at these factors in more detail.


How does your age affect your insurance premiums?


Your age is one of the most important factors in your car insurance cost, especially if you’re under 30. Statistics show that drivers under 30 can pay almost twice as much on average than drivers in their 40s and 50s.

Despite what some people think, this isn’t age discrimination. Younger drivers are involved in a disproportionately high number of road accidents, so insurers cover that risk by increasing the cost of insurance. This higher perceived risk for newly qualified drivers also extends to new drivers of any age, as inexperience on the road still results in higher premium costs.

Despite having more driving experience, older drivers may also find themselves facing higher premiums, as statistically, the likelihood of an accident rises after the age of 70.


How does vehicle make and model affect car insurance?


Understandably, what car you drive is another one of the big variables that influences what you pay for car insurance. It’s not as simple as just being down to which make or model you have though, there are lots of details about your car that can play a part in changing the price of insurance.

These include:

  • Its age and value
  • The size of the engine
  • Any modifications you’ve made
  • How attractive it is to thieves

Each of these points helps insurers to calculate how risky your car is to insure, whether for road incidents, fire, or theft.

The Group Rating system categorises cars into 1-50 insurance groups, to provide insurers with their relative risk and helps them to decide which cars are likely to cost insurers the most in insurance claims. These car groups play an important role in calculating your premium costs, and every make and model of car is assigned to one of these 50 insurance groups.

The groups are based on several factors, including the time and cost to repair the vehicle, new car value, performance, safety features and security. Cars in higher groups tend to be expensive models, whereas those that are in groups 1-10 are typically the cheapest to insure.


How does my address affect my car insurance premium?


Location is important when working out how to calculate car insurance and it can say a lot about how likely you are to claim during the term of your policy. Again, there is a range of location-based factors that insurers consider, but two of the main ones are the rate of road incidents and car theft where you live.

If you live in a built-up area where there are more bumps and scrapes, for example, an insurer might consider you a higher risk than someone who lives in a secluded spot. Similarly, if your area is notorious for car theft, you can expect that your car insurance price will be higher than otherwise.


How does your occupation affect premiums?


What job you have (or don’t) might not seem that important in how much you pay for car insurance, but it says more than you might think. An insurer can use information about what you do for a living to help them determine what risks you pose as a driver.

Like everything else in car insurance, this is based on statistical risk rather than personal judgement. That means that it’s not very flexible, so a ‘bricklayer’ might end up paying more than a ‘construction worker’, for example, because of differences in historical claim data between the two job titles.

This prediction of likelihood to claim is based on a whole variety of factors, including whether an occupation requires you to drive more, whether you usually drive after working long hours or at unsociable times and whether you have to visit areas that have high crime rates.

Considering the variance of cost between similar job roles, such as construction workers and bricklayers, it is worth checking quotes for all relevant titles to see what may be the less costly option.


How does annual milage affect car insurance?


It makes sense that the more you drive, the more likely you are to be in an incident that means you have to claim. Or on the flip side, if you don’t drive that often, your likelihood of being in an incident decreases. That’s why your car usage plays a big role in influencing the cost of your insurance.

When you apply for car insurance quotes, you’ll be asked how you use the car – for Social, Domestic and Pleasure (SD&P) or business use. You will probably also be asked about your mileage, and how much you drive in a given month or year. Your answers will help insurers to calculate what that means about your risk of being in an incident and will be factored into the cost of your premium.

When applying for or renewing a policy, it is best not to just estimate your mileage as your policy may not pay out if you need to make a claim and your expected mileage differs from how much you drive. On the other hand, if you overestimate your annual mileage, you could end up paying too much for your insurance premium.

A way to know how high your mileage estimation should be is by looking at what you drove in the past year using your MOT certificate.


How does insurance cover type affect my premiums?


Car insurance is generally available at three different levels: third party only, fire and theft and comprehensive. These types of car insurance offer different coverage against damage and injury and you can choose between them to get the level of coverage that’s right for you.

Which one you choose may play a big part in the cost that you’ll end up paying, as a higher level of coverage may increase your premium. This is one of the biggest influences on the price calculations insurers make when you do a quote.


How does my driving history affect prices?


An important aspect of how to calculate car insurance is your driving history. This is used to predict your individual risk and gives car insurance providers valuable clues about your driving ability and behaviour, meaning they can more accurately assess the risks you might present.

More experienced drivers are often seen as a lower risk than those who have only been driving for a year or two. Additionally, other parts of your driving history, such as previous insurance claims you’ve made, points you’ve accumulated on your driving licence, and whether you’ve got an existing no-claims bonus, will also be taken into account.

When asking for claims details, car insurance providers will usually ask you to share details of any claims you’ve made in the past five years. Including claims that weren’t your fault. This can be seen as unfair. However, any claim you may have can increase your risk of making a new claim in the future.

No-claims discounts can also be accrued if you’ve not made any claims for a year or more, which can help to lower the cost of your premiums.


How does where I park my car affect premiums?


While not important in terms of figuring out the risk of you being in a road traffic incident, how secure your car is when it’s parked is a big factor in how likely it is to be stolen. With Home Office statistics showing that car theft is rising, this is important information for insurers to calculate what risk they’re taking on.

Insurers can judge the security of your car based on where you park it, what kind of alarm system it has, and whether it has any other security features such as an electronic immobiliser.


How does my Voluntary Excess affect how much I pay?


Voluntary excess is the amount you agree to pay towards a claim, in addition to the compulsory excess set by your car insurance provider.

If you decide to pay a higher amount of voluntary excess when you take out or renew your car insurance, you could receive a cheaper premium, as this will decrease the sum your insurance provider needs to pay out in the event of a claim.


How do vehicle modifications affect my premiums?


When working out how to calculate your car insurance, modifications to your car often increase your premium. Examples of modifications that are likely to increase your premium include exhaust upgrades, adding alloy wheels, or even tinting your windows, as these classify your car as being at a greater risk of accident or theft.

However, other modifications that are added to improve safety, such as cameras, parking sensors or a tracking device, can sometimes decrease your premium cost.

It is vital to be honest with your insurance provider about any modifications to your car, as not doing so could invalidate your policy. It may even be worth speaking to your current insurer before you get any modifications done to your car to find out how they might impact your existing policy costs.


How does adding named drivers reduce costs?


Sharing your car with a more experienced driver or a driver with a no-claims history could help to bring the cost of your premiums down and is especially useful if you’re a young or inexperienced driver.

This calculation works on the basis that sharing your car will mean that you will spend less time driving it and ultimately reducing your overall risk level.

However, when applying a named driver to your policy, it is important to select the main driver as the person who will use the car the most, otherwise, you can be accused of ‘fronting’, which will invalidate your insurance.


Insurance Premiums and Add Ons


The final factor to consider when looking at how to calculate your car insurance is the option to add any optional extras to your policy. Some may choose to remove these add-ons from the policy to save a bit of money upfront, however doing so may cost you more in the long run, as if you don’t have them when you need to make a claim, you won’t be covered for those specific needs as part of your policy.

Add-ons that may affect the cost of your car insurance include:

  • Personal possessions cover
  • Driving abroad
  • Breakdown cover
  • Courtesy car
  • Protected no-claims discount
  • Windscreen cover
  • Personal accident cover
  • Replacement key cover for lost keys or stolen keys
  • Motor legal protection



If you’re looking to save money on your car insurance, compare quotes from some of the UK’s leading/top insurance providers online to find the best deal for you.

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