Have you ever wondered how the cost of your car insurance is calculated by the insurance companies? For most of us, the calculation of car insurance premium is a mystery that not many of us dig deep to find about it. We all know that we can shop around to get competitive car insurance but what we don’t know is how insurance companies work out our premiums that go up and down each year.
The biggest factor when insurance companies calculate the cost of insurance premium is how likely you are going to make a claim and how expensive that claim is likely to be.
Here is a list of common factors that will help you understand how your car insurance premium is calculated and how you can reduce it.
Age is one of the most important factors that insurance companies use when they calculate your car insurance premium. Usually, the young drivers with the less car driving experience tend to be involved in more accidents and hence if you are a young driver, you will see a higher premium than those of older drivers.
The drivers between the age of 17 and 25 are usually charged with the higher insurance premiums by most insurance companies in the UK. In most cases, once the drivers have gone above the age of 25, they tend to see their insurance premiums dropped. But that is not always a guaranteed factor as insurance companies will also look into the factor if you have been involved in any accident in the last 5 years.
Your occupation is another factor that plays a crucial role when your insurance premium is being calculated. If your work involves a lot of driving or working in high risk areas, you would likely pay a higher insurance premium. For example, if you are a motor trader or work as a delivery guy, your insurance premium will be higher than those who are working as school teachers as school teachers would normally have car parking space at their work and their travel from home to their place of work is lot less than compared with the other occupations mentioned before.
As the name suggests, the expensive car you have, you will have a higher insurance premium. An insurance provider will see an expensive car as a higher risk payout for a claim resulting in placing a higher premium compared with average family cars.
The cars are divided into 50 groups and each group is made up of car value, safety, performance, security and maintenance costs. They higher the group value, the higher the insurance premiums.
If you modify your car to increase its performance or make it look unique, your insurance premium will likely go up. For example, if you boost your engine BHP by adding a booster sensor, or you paint your car in golden color, your car will likely be seen as a higher risk either for accident or becoming more attractive to thieves. In either case, your insurance premiums will go up.
Your postcode is also a factor when insurance companies calculate the cost of car insurance. If you live in a built-up area where the chances of accidents are higher, you will see a higher premium. Also if you live in an area where the crime rate is higher, that will also likely increase the cost of car insurance.
If you have a security device or immobiliser installed in your car, you will see reduction in your car insurance premiums. Where you park your car during day or night will also play a major role when calculating the insurance cost.
How you use your car will also be part of the calculation for insurance premium. If you use your car for commuting to work, your insurance premiums are likely to be higher than if you use your car for social purposes.
If you drive a lot and build up a higher annual mileage on your car, you will also see an increase in your insurance premium.
If you are a careful driver with no accidents/claims and no traffic violation points on your driving license, you will see reductions in your insurance premiums. If you don’t get involved in an accident or there is no claim from your insurance provider, you will get No Claims Discount or NCD certificate from your insurance provider that will help you lower your insurance premium.