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What Factors Affect your Car Insurance Premium?
You might pay a much different price for your car insurance than your coworkers, friends and family members. Why is that? Insurance companies price policies based on the level of perceived risk you present as a customer. We've broken out the major factors that insurers consider when deciding just how risky you'll be to insure—these apply whether you're buying from a small or large auto insurance company.
Number of claims and convictions filed in the last 5 years
Part of getting a car insurance quote involves answering questions about claims and accidents you've had in the past five years. You'll even be asked if you've been involved in accidents that were not your fault or for which no claim was made. You'll need to disclose this information, plus say if you've had any motoring convictions, driving licence endorsements or fixed penalties, or if you've been disqualified from driving in the past five years. These factors are likely to raise your insurance premiums.
No Claims Discount
Having a No Claims Discount (NCD) can be a pretty straightforward path to lower auto insurance premiums. Your NCD is essentially a percentage reduction to your premium, earned if you haven’t made a claim in a certain period of time. Each year in which you are claim free, your NCD can increase, growing from around 30% after one year up to 50% - 60% by the fifth claim-free year, at which point it may be capped.
Making a claim will reduce or eliminate your NCD. Generally speaking, the more claims you make, the more the NCD is reduced until is it totally lost. For instance, the first accident may result in your NCD being knocked back by two years. Keep in mind that every insurer operates a different set of NCD rules, both in terms of earning and losing your NCD.
Driving experience
One significant factor that impacts the cost of your motor insurance is how many years of driving experience you have. Generally speaking, more years on the road translates into lower premiums, as drivers with more experience are expected to be less likely to have a crash. Insurers will get this information in different ways. For instance, you may be asked how long you've had a licence or what year you first received your licence.
Age
Driver age factors quite heavily into your car insurance premium price. In fact, our studies on the Average Cost of Car Insurance and the Average Cost of Motorcycle Insurance indicate that drivers in their 20's can pay 50% more than drivers in their 40's. Younger drivers (and those much older) tend to have the most accidents, file the most claims and cost the insurance companies more than other age groups.
You Health
Certain medical conditions must be declared to the DVLA; and some insurers will ask about medical conditions as well. If you're asked about (and have) a medical condition that an insurer thinks could increase the risk of you being involved in an accident, then your premium could be impacted.
Gender
Our analysis of 5 top car insurers found, very surprisingly, that women garner slightly higher premiums than men—but only by a few percentage points. Your marital status may also play a role in the price of your auto cover.
Your Car
Many facts about your car will play a role in the price an insurer will quote you. Here are a few of the biggies:
- How expensive is your car? Luxury, sports and SUV vehicles which are more expensive are also more costly to repair or replace in the event of accident or theft. Cars with more premium trim levels typically cost more to insure.
- How big is your car's engine? Typically, larger engines cost more to insure.
- How old is your car? We've found that car insurance premiums tend to be highest for brand new cars, but that premiums may creep up again after cars pass a certain age (around 10 years).
- Is your car popular with thieves? In 2017, the most stolen cars in the UK were the Mercedes-Benz C-Class, BMW X5, Range Rover Sport, Mercedes-Benz E-Class, BMW 3 Series, Land Rover Discovery, Range Rover Autobiography, BMW M3, VW Golf and Audi RS4. If you own one of these makes and models, your insurance premiums are likely to be higher than if you own a car which is not often stolen.
- Is your car in a high insurance group? All vehicles are categorised into an insurance group, which range from group 1 to group 50. Cars in higher insurance groups typically cost more to insure, because they would cost more for an insurance company to repair or replace.
Occupation
You might think you drive the same regardless of your job title, but the insurers take a different view. They use historical data to determine which jobs tend to result in higher claims, and price accordingly. While it's critical to be honest on your insurance application about your job, if there are different ways to describe your job accurately, it can be worth pricing policies with these different occupations.
For instance, we recently tested Comprehensive car cover prices on a Ford Fiesta for a Manager, a Catering Manager and an Accounts Manager. The Accounts Manager came out cheapest at £925 per year, while the Catering Manager cost 14% more at £1,055 annually. The premium for a nondescript "Manager" was £974, right in the middle. Clearly, the Accounts Manager should be specific about their job to secure a lower premium whilst the Catering Manager would pay less by stating their occupation is simply "Manager."
Where you Keep your Car
Since the number of cars stolen in the UK has risen 30% over the past three years (according to RAC Insurance), you can be sure that insurance companies want to know where you keep your car—especially at night. Cars living on the street will usually cost more to insure than, say, a car stored on a private drive or in a garage. This is a detail you'll most likely be asked about during car insurance applications.
When, Why and How Much you Drive
It may surprise you but insurers care when and why you're behind the wheel. If you regularly drive for business purposes, you'll probably pay higher insurance rates than if you just use your car for social purposes. The same is true if you tend to drive during peak hours, as accidents are statistically more likely when there are more cars on the road.
Also, those driving more miles each year tend to pay more—this makes some sense, as the more you're on the road, the more likely you are to be involved in an accident. Be careful to be honest about your expected annual mileage when you sign up for auto insurance, however, as you don't want an insurer to say a claim isn't valid because you mislead them on your application by understating your annual mileage.
When You Buy Your Car Insurance Policy
You may not realize it, but when you buy your car insurance can have a massive impact on the price you'll pay. In fact, our study of how the timing of your car insurance purchase affects price found a 50% reduction in car insurance rate if you buy 3 weeks in advance of the coverage start date, versus buying a plan that starts today.
Parting Thoughts
As you can tell by now, there are so many factors that go into determining your car insurance premium that prices can vary drastically from person to person, and there may be extenuating factors. For example, someone insuring an accident damaged car may need to pay more. What is best or cheapest for one person will not be best or cheapest for the next.
But understanding what is important to the insurers can help you get a handle on why you're seeing car insurance prices in a certain range, know how you can reduce your premiums (e.g., via a NCD) or even help you recognize a good deal. For information on finding the best insurance company for your needs, see our article on best, cheap car insurance companies.