Factors that affect car insurance premiums

How the cost of your car insurance is calculated

The cost of your car insurance. Ever wondered how it's calculated? Shopping around can find a competitive price, but it helps if you know what factors make a difference.

When working out the price, usually known as the premium, insurers use details about you, your vehicle, and how you drive. This information is used to predict how likely you are to make a claim, and hence how much you'll be asked to pay.

Where you buy insurance also makes a difference, whether it's direct from an insurer or through a third party or a price comparison website.

Have a look at our video, which shows how insurers work out car insurance premiums.

Factors that affect car insurance premiums - a crowded car park full of cars

How your car affects your insurance

The current age and value of your car affects your insurance premium, plus the insurance group that the car is in. Different car models are grouped together based on their price when new, performance, repair costs, and the price of body shell and replacement parts.

The insurance group process also looks at safety features like locks and alarms to determine how secure the car is likely to be. However, the groups don't take into account specialist cars such as imports or conversions.

Modifications to a car, like tinted windows or a custom exhaust could affect the cost of your insurance. On the other hand, safety features like Autonomous Emergency Braking (AEB) or collision warning technology could lower the premium. In the future, there's also a possibility that autonomous or driverless cars could attract a lower premium.

How your driving habits affect your premium

How you use your car also affects how your car insurance premium is calculated. For example, your expected annual mileage will tell the insurer how much wear and tear your car goes through. And your driving record, including penalty points on your licence, suspensions, convictions and previous insurance claims will also matter.

Where you live is important too, but your postcode can be something of a lottery. If your local area has high crime rates, or you live near a junction known for accidents, this could mean there are more claims where you live. Insurers take this into account, because even though it doesn't reflect on your personal driving habits, it can mean an increased risk of theft or an accident.

Details of any named drivers included on your insurance policy will affect the price in the same way as your own details.

Other factors that affect the cost of your insurance

Apart from your car and how you drive it, two key factors that affect the premium are your no claim discount and the level of your voluntary excess. A no claim discount counts the number of years that have gone by without you making a claim on your car insurance. The more years, the more discount you can expect, though the discount can vary among insurers.

The excess is the amount you have to pay towards any claim, and it's made up of the voluntary excess and the compulsory excess. The compulsory value is set by the insurer, whereas the voluntary excess is decided by you, the policyholder. If you choose a low voluntary excess, it can raise your premium.

Here are some more factors that insurers can use to calculate your insurance premium:

  • Add-on policy features, such as a replacement car
  • Legal assistance cover
  • Windscreen cover
  • Driving in mainland Europe
  • Membership of the Institute of Advanced Motorists
  • Connected devices like telematics, also known as a black box insurance
  • Protecting your no claim discount

How to get cheaper car insurance

Buying a car in a lower insurance group, keeping a clean licence, living in a safe area and being careful how you modify your car can all help reduce the cost of your insurance.

And where you buy your policy matters too, either direct from the insurer or via a third party, such as a price comparison website. Comparison websites are a convenient way of seeing what's on offer across the market, but you may only see basic packages, rather than more customised policies that are more suitable to your needs.

However, the basic deals on comparison websites will almost certainly be the same price as going direct. These sites usually have agreements that stop them being undercut.

But you may still find a policy on the insurer's website that's better value, because it includes inclusive extras or a greater level of cover. For example, we offer a courtesy car as standard with comprehensive car insurance.

So when you're shopping around for car insurance, it's worth thinking about how going direct could affect what levels of cover you get.

Author: The AA. Published 3 July 2019. Updated 10 April 2024.

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