How your car insurance premium is calculated

Insurance works in a very simple way; the higher the risk you pose, the more you pay because the greater the chance that the insurance company will have to pay out if or when you make a claim.

They know they'll lose on some policies and win on others - but their plan is to come out ahead (in profit) overall.

When your insurance premium is calculated, your insurer takes a whole load of factors into account, each one helping them to work out how likely you are to make a claim. This is what’s taken into account, and why: 

  • Where you live: some areas have higher theft rates than others.
  • Age: there’s no substitute for experience to reduce the likelihood of an accident.
  • Driving history: if you’ve spent the last year crashing into things, there’s a good chance you’ll continue to do so.
  • Occupation: lawyers and doctors are a safe bet; journalists and film stars aren’t. How you earn a living radically affects the risk you pose, so if in doubt just become an accountant.
  • Licence cleanliness: is your licence loaded with points? If so, you clearly have problems obeying laws; insurance companies don’t like law breakers.
  • Annual mileage: the more you drive, the greater the risk of you having an accident. Keep your annual mileage down and you can reduce your premium accordingly.
  • Security: if no alarm or immobiliser is fitted, there’s a good chance your car will walk. Fit some sort of security system, your car will stay where you leave it and there’ll be no claim made. Everyone’s a winner.
  • Where the car is kept: insurance companies like garages, or at least off-street parking. Leave your car in the road and you’ll pay more.
  • Who drives it: allow the world and his wife to drive your car and you’ll get charged accordingly. Restrict cover only to those who really need it.
  • Value of the car: the higher the value of the car, the more it’ll cost to insure. It really is that simple.
  • Type of cover: comprehensive cover costs more than third party, fire and theft. If your car is almost worthless, don’t insure it comprehensively – but shop around and you might be able to insure it comprehensively for the same money that someone else is charging for just basic cover.
  • Usage: insurance companies don’t like vehicles being used for business use. So restrict its use to social, domestic and pleasure for a lower premium.
  • Left or right-hand drive: insurance companies don’t like British drivers running left-hand drive cars; they like the steering wheel on the right.