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How car insurance is calculated

With car insurance premiums varying so much - both between different providers and different customers - you might well wonder how car insurance is calculated.

When you apply for car insurance, you will be asked a series of questions, including where you live, your age, occupation, make and model of car and any security features it has, as well as your motoring history and if you’d like to add a voluntary excess. These points and more are all taken into account when your premium is calculated.

Age

Your age is a major factor affecting the price of your car insurance. Drivers under 25 tend to pay the highest premiums. Inexperience means insurers see younger drivers as higher risk - and accident statistics back this up. Young drivers can take certain steps to lower the price, such as opting for a Black Box or Telematics policy, and will gradually build up a no claims bonus in their own name, assuming they avoid accidents.

Occupation

What you do for a living can affect how much you’ll pay for car insurance. Some jobs are seen as higher risk, or insurers believe people in certain occupations drive more.

Residence

Where you live can affect your insurance price significantly. Your premium will be calculated according to your postcode, and factors like car crime and accident rates for that postcode will be taken into account. Inner city areas are more often classed as high risk than more rural locations.

Car

The make, model and marque of your vehicle are used in working out car insurance premiums. All cars are placed in one of 50 insurance groups, and the higher the number, the higher the risk. Expensive cars are clearly costlier to replace, and any kind of car with modifications may also cost its owner more to insure.

Security

Security is considered when insurance costs are calculated, and this is done in two ways. Firstly, any security features your car has, such as an alarm, immobiliser or high security door locks, may lower the price. Secondly, keeping it in a garage or monitored car park is also likely to cut the cost of your premium, while keeping it on a public road might cost more.

Use of the car

The way you use your car may be taken into account too. For example, if you use the vehicle for commuting, you will be seen as driving more often during busy times and this may up the price.

No claims bonus

The longer you have had car insurance for without making a claim, the more no claims discount you should be entitled to. Some insurers will even let you pay extra for no claims bonus protection, so you might be able to continue benefiting from this even if you do make certain kinds of allowable claims.

Excess

If you offer to pay a voluntary excess, this may reduce the cost of your car insurance. This is because the insurer would have to pay less in the event of a claim, plus they know that you may not make small claims as they wouldn’t be covered anyway.

Type of cover

Whether you opt for fully comprehensive cover, third party, fire and theft or third party only will affect the price you pay. A lower level of cover is not necessarily cheaper, however, so do get quotes for other types of policy.

Extras

You can add all sorts of extra cover to your policy. Some are included for free, while others cost more. These policy add ons range from motor legal protection to breakdown, personal possession, courtesy car, key and personal accident cover.

Other related FAQs

Looking for more related content to this? We’ve picked a selection of related topics that you may find helpful

Backdating car insurance cannot be done under any circumstances. Since it is a criminal offence to do so, you will not find any broker or insurance company who will be able to do this for you.

Put simply, the reason why car insurance is high is because the cost of claims is high. As a result, insurers increase premiums to protect themselves and make a profit.

Yes, you can transfer your car insurance policy. Simply contact your existing insurer to ask. There may be a price difference and a fee to amend the policy.

Unfortunately, it’s impossible to accurately calculate how much your car insurance is going to cost without getting a range of quotes. As well as looking at national driving statistics, insurers will seek a huge amount of information about you and your vehicle before deciding on a personalised price.

Generally speaking, your car insurance covers your vehicle and damage that you may cause to other vehicles and motorists. Depending on the type of policy, it can also cover a range of additional extras, such as medical expenses and breakdown assistance

A no claims bonus is a discount that’s applied after your insurance premium is calculated by a car insurance provider. The discount doesn’t stop your premium from going up; instead, it simply gives you a percentage off your premium – and that discount grows with every claim-free motoring year you have.

If you make a claim on your insurance policy, car insurance excess is the amount you will pay towards that claim. There are two types of car insurance excess – one compulsory, the other voluntary. The compulsory excess that your insurance company sets is the amount you must pay towards any repair done to your vehicle if you cause an accident. The voluntary excess is an optional amount on top of this – which means you’ll pay more towards repairs – but your annual premium price will come down in exchange.

There are a number of reasons why car insurance quotes can change, such as if you’ve recently changed your address, or for reasons out of your control, like government tax increases.

Unfortunately, making any kind of insurance claim will often increase your renewal premium – even if the accident wasn’t your fault.

If you’ve had an accident of any kind, you’ll need to report it to your insurer soon afterwards. When you do, they’ll seek a detailed explanation of what’s happened and assess the damage done to your car. When they have a clear understanding of what’s occurred – and assuming you have fully comprehensive cover, they’ll arrange to repair your vehicle – or pay its market value if it’s written off.