Many factors affect the cost of car insurance. Some of them are quite individual, which is why your car insurance premium can be different from someone else’s – even though they have a similar car.
When you’re planning to buy a car, it’s a good idea to get some insurance quotes for the makes and models you’re considering. You might be surprised at how different they can be. Always check the policy details carefully though, rather than just comparing prices. If you’ve done your homework in advance, you’ll be able to quickly arrange the insurance as soon as you’ve found the car you want. Even if you’re just renewing the insurance for your current car, it always pays to shop around.
In the meantime, this article will help you understand why car insurance premiums vary so much and how you can keep the cost down, while still getting the cover you need.
Why is everyone’s car insurance premium so different?
Insurance providers base the cost of each policy on their assessment of the overall risk each situation presents. Here are some of the main things they consider.
The car
The type of car you buy can have a big effect on your insurance premium. What you pay will depend on:
- How much it would cost to repair. Are panels and parts readily available and how expensive are they?
- How much it would cost to replace. As you’d expect, a more expensive car costs more to insure.
- How powerful it is. High-powered, go-fast vehicles cost more to insure than regular models.
- Its safety rating. Safer cars are cheaper to insure.
- Its security system. A car with a modern alarm system and engine immobiliser is less likely to be stolen, so it will cost less to insure.
- How popular it is with thieves. Cars that are popular with thieves will feature highly on the insurer’s stolen car claim lists, so they know to charge more to insure them.
The drivers
Car insurance providers look at accident and insurance claim statistics to identify the risk someone like you typically presents. It’s a group thing, so even if they’re the safest drivers on the road, you’ll typically pay more for car insurance if any drivers named on your policy:
- Are under 25 or over 70 years old
- Have limited driving experience, such as being on a learner’s or restricted licence
- Are male, particularly a young or single man
- Have made a car insurance claim or been in an accident that was their fault
- Have several traffic or speeding tickets on their record
The car’s location and use
Apart from the type of car and driver, here are the main things car insurance providers use to assess their risk and set the premium they’ll charge.
- Your post code. If you live in a city with a lot of traffic, narrow windy roads or car thefts, your premium will be higher – especially if your suburb is known for thefts and accidents.
- Where you park. If you park on the street, rather than off-road or in a secure garage, your premium will be higher.
- How far you drive. If you drive long distances in heavy traffic most days, it will probably increase your insurance cost.
- Why you drive. If you sometimes use your car for business purposes, you’ll pay more than for private use only.
The type of policy you choose
Different policies offer different amounts and types of cover. In general, the more cover you have the higher the premium will be. But even two policies that cost the same can offer quite different benefits when it comes to their finer details. That’s why it’s important to check what is and isn’t covered when you’re doing your research. To help you get started, here are the main choices that different policies offer.
Third party or comprehensive cover: The cheapest type of car insurance is third party only. It covers damage your car causes to another vehicle or someone else’s property. It doesn’t cover your car for anything. Third party, fire and theft policies cost a bit more. They include cover for your car if it’s in a fire or stolen, but not for any damage to your car. The most expensive type is comprehensive or full insurance, which covers your vehicle for accidents, theft, fire, vandalism and storm damage, as well as damage you cause to someone else’s car or property.
The policy’s excess: This is the contribution you agree to pay towards any claim. Most policies have a standard excess amount, but you can often increase it in return for a lower premium. However, it’s important to check that you have enough in the bank to pay the excess, otherwise you won’t be able to claim.
Agreed value or market value cover: This is how they decide what your car is insured for and the maximum pay-out you’ll get, minus your excess, if your car is written off. Agreed value is a set amount that you both agree to each year. Market value is based on your car’s retail value just before it was stolen or damaged. If you don’t accept the insurer’s valuation at the time, it can be decided by a registered valuer. Market value cover is usually cheaper, but you’re never quite sure of the maximum cover you’re paying for.
Extra options: Some policies offer optional extras that you can pay more for if they suit your needs. They’re more common with comprehensive policies. Two popular examples are, paying no excess if your windscreen or other windows are damaged, and getting a rental car while your car is being assessed and repaired.
How to reduce the cost of car insurance
Now that you understand the main influences on the cost of car insurance, here’s a quick summary of how to minimise the premium you’ll pay for the cover you get.
- Choose a popular car with no modifications and consider adding a security system if it doesn’t already have one.
- Talk to friends and family about their insurance experiences, and shop around online or use an insurance broker to get the best deal.
- If you have other types of insurance you may get a good discount by having them all with one insurer.
- Only get the cover you need and think carefully about the excess amount.
- Read the policy detail carefully, especially the exclusions (what isn’t covered) and any pay-out limits for specific events.
- If no-one under 25 will drive your car, let the insurer know and ask for a discount.
- Take care with small claims. Their effect on your future premiums could mean it’s not worth claiming.
- Drive carefully, park sensibly, don’t risk getting traffic tickets and remember drink-driving, speeding or not having a current WoF at the time of an accident will usually mean you’re not covered.
- When you take out your policy, be careful to answer the insurer’s questions accurately and fully. If they later find out you didn’t mention something important, you might not be covered when you make a claim. If you do make a mistake or something in the paperwork they provide isn’t quite right, call them as soon as possible to correct it.
Next steps
To learn more:
- See our complete guide to car insurance
- Read our article on understanding young drivers’ car insurance
