How is Your Car Insurance Rate Calculated?

Anyone who has ever owned a car can tell you that the costs really add up. Not only do you have to buy the vehicle itself, you also need to pay for fuel, servicing, an MOT, road tax, as well as insurance. For most of these things, you don’t get a lot of say in how much you’re charged, but with insurance, you can shop around for a good deal.

The question is, how are your insurance rates calculated, and can you get an even lower price than those currently on offer? There are lots of factors that influence the price of your car insurance, some of which are beyond your control, such as age. But there are some things you might be able to work on.

We’ve looked at how your car insurance is calculated, and things you can do to impact this, in more detail below:

What Factors Affect Your Insurance?

There are four main factors that determine how much your car insurance will be. These are your age and how long you’ve been driving, your credit history, the make and model of your vehicle, and your driving history.

1. Age and Years of Driving Experience

One of the main things that can impact your car insurance cost is how old you are, and how long you’ve been driving. This may not feel fair, as there’s not a lot you can do about your age, but it’s generally assumed that younger drivers are more likely to get into accidents. They’ve got less experience behind the wheel, and therefore could be claiming on their insurance before too long.

The thing is, it’s not so much your age as it is your experience. Anyone who has recently passed their test, regardless of age, will probably have a higher premium.

2. Your Credit History

Statistics have shown that people who have a low credit score typically make more claims on their insurance than those with good credit ratings. This means that if you have a bad credit history, you may be charged more for insurance.

If you think about it, you’re effectively getting credit from an insurer if you choose to pay monthly rather than yearly. You’ll owe the insurance company money, and they need to ensure you’re able to keep to these payments. So it’s not really a surprise that your credit history matters when you take out car insurance.

3. Your Vehicle

The car you drive can also significantly impact your insurance premium. The value of the vehicle, its power and safety features, as well as whether you own or lease the car will all influence your insurance calculations.

In terms of value, as a brand new sports car will cost more to repair than an old banger, the insurance goes up. Vehicles with more powerful engines tend to be involved in more accidents, so insuring a powerful car will be more expensive too. Better safety features can lower your rates, while leasing the car can increase them. If you’re leasing a vehicle, the lender may require you to get more comprehensive cover, making insurance more costly.

4. Your Driving History

In the same way your credit history is often a good indicator of how much of a risk it is for a creditor to lend to you, your driving history can tell an insurance provider a lot about your risk level. Anyone who is seldom involved in an accident, and doesn’t make claims often, is likely to be offered better rates.

Of course, you can’t always avoid accidents, no matter how safely you drive. But what’s important to the insurance company is the claim, not necessarily the incident itself. To protect your no-claim history, you may therefore choose to pay for repairs out of pocket, rather than making a claim.

How Can You Get a Cheaper Insurance Rate?

As we’ve seen from the factors above, a lot of the things impacting your insurance rate are outside of your control. You can’t change your age or your driving history, and you’re unlikely to get a new vehicle just so that your insurance is cheaper. However, there are a few things you can do.

Your credit rating is something that you can work to improve, and this can impact your insurance rates. In terms of how to go about this, you can pay off old debts, set up arrangements for any credit that’s in arrears, or even take out credit. We’ve looked at this topic in more detail in our guide on credit files.

It’s also good to keep in mind that not all insurance providers will view your information in the same way. Some will weigh certain factors differently to others, and will offer higher or lower rates depending on their assessment of the risks involved. Essentially, every insurance company will have their own formula, and you can get better rates with certain insurers.

The best thing to do is use a comparison site, such as MoneySupermarket, GoCompare, or CompareTheMarket. These should show you which insurance companies offer the lowest rates for you, taking your individual circumstances into account.