How is Car Insurance Calculated?

child playing with toy cars
26 Jun 2019

The first question most people have when considering which car insurance policy to go with is ‘how much will car insurance cost me?’

Calculating car insurance premiums is a complicated process that insurers spend a lot of time trying to get 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 eight of the biggest factors that go into calculating what you pay:


Your age

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 40's and 50's.

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.


Your car

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.


Where you live

Location is important in car insurance and it can say a lot about how likely you are to claim during the term of your policy. Again, there are 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.


Your occupation

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.


How much you drive

It makes sense that the more you drive, the more likely you are to be in an incident that means you have to claim. 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, 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.


What type of coverage you choose

Car insurance is generally available at three different levels: third party only; third party, 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 cover that’s right for you.

Which one you choose plays a big part in the cost that you’ll end up paying, with a higher level of coverage obviously coming with a higher price tag. This is one of the biggest influences on the price calculations insurers make when you apply for quotes.


Your driving history

When calculating your individual risk as a driver, one of the best tools that insurers have is your personal driving history. This gives them valuable clues about your driving ability and behaviour, meaning they can more accurately assess the risks you might present.

Parts of your driving history that insurers will be interested in include any previous insurance claims you’ve made, points you’ve accumulated on your driving licence, and whether you’ve got an existing no claims bonus.


The security of your car

While not really important in terms of figuring out what 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.


Take into consideration all of the factors listed above when looking at car insurance quotes. It can be handy to use a car insurance calculator (UK drivers only) to get a better idea for your own personal situation. Also take a look at our advice on how to save money on your car insurance and compare quotes from up to 70 leading UK insurers to find the best car insurance for you.

Trustpilot reviews