How car insurance premiums are calculated

Worried about the cost of car insurance? You’re definitely not alone. Luckily, there are things you can consider that could help reduce your premium. You just need to learn the ins and outs of how your car insurance premium is calculated.

Written by

Rebecca Goodman

Insurance expert

Last Updated

11 OCTOBER 2024

8 min read

How much can I save on my car insurance?

51% of customers could save up to £461^[1] on their car insurance by comparing quotes from multiple car insurance providers with us.

^[1]Based on Online independent research by Consumer Intelligence during September 2024, 51% of customers could achieve this saving on their car insurance through Compare the Market.

How is my car insurance premium calculated?

The cost of your car insurance premium is based on how likely your insurance provider thinks you are to claim, and how substantial any claim could be. To assess this, insurance providers look at various factors including:

Your occupation
Your annual mileage
Your address
How much voluntary excess you’re willing to pay
The make and model of your vehicle
Whether you’ve modified your car
Where you park your car overnight
Your age
Your driving history, including any no-claims discounts
Whether or not you’ve added any named drivers onto your policy
The type of cover you’re taking out.

Ultimately, car insurance providers calculate your car insurance premium by assessing how big a risk you pose to them. They do this with the help of facts and statistics related to all these criteria.

How does my job affect my car insurance premium?

What you do for a living could give insurance providers an insight into how likely you are to claim. You may think, quite rightly, that racing car drivers pay more for their car insurance. But you may be surprised to learn that some more common job types, such as recruitment consultants, social workers and midwives, are also likely to pay more. This is due to a variety of factors, including being seen to drive more, driving after working long shifts or unsociable hours, or visiting areas that have high crime rates.

Even similar job titles can result in different premiums, for example, construction worker and bricklayer, or chef and kitchen staff. So if your job title fits in more than one category, it might be worth checking quotes for all of them. But remember the details you give should be as accurate as possible and not misleading, otherwise you could invalidate your policy.

How does my annual mileage affect my car insurance premium?

The further and more regularly you drive, the more likely you are to be involved in an accident. Having a higher-than-average annual mileage is likely to push your insurance premiums up. On the flip side, if you don’t drive that often your insurance is likely to be less.

When applying for a policy, don’t try to guess how far you’ll drive. Your policy may not pay out if you need to make a claim and your expected mileage doesn’t reflect how much you actually drive. On the other hand, over-estimating could lead to you paying too much for your premium.

You can see how much you drove in the past year on your MOT certificate, but don’t forget to account for any big changes, like a new place of work.

How does my address affect my car insurance premium?

Insurance providers will look at a range of statistics from your area including general driving behaviour, the crime rate, how busy it is and the average number of claims (both legitimate and fraudulent) and work out how likely it is that you’ll make a claim.

How does my voluntary excess amount affect my car insurance premium?

Voluntary excess makes up part of the amount you pay towards a claim. The other part is compulsory excess, which is set by your insurance provider. The higher your voluntary excess is set, the smaller the sum your insurance provider needs to pay out in the event of a claim, which could result in a lower premium.

But remember, your excess needs to be affordable if you do have to make a claim, so don’t set it too high.

How does the make and model of my car affect my car insurance premium?

The more expensive your vehicle is, the more it will typically cost your insurance provider if it’s written off, and the more you will pay for insurance.

Cars are categorised into insurance groups 1-50, and that plays an important role in calculating your premium. Car insurance groups are based on various factors including new car value, time and cost to repair, performance, safety features and security. Cars in groups 1-10 are typically the cheapest to insure.

How does making modifications affect my car insurance premium?

Car modifications, such as adding alloy wheels or parking sensors, could affect insurance costs if they increase your car’s value, as this makes it more desirable to thieves and more expensive to repair or replace. Modifications that improve your car’s performance, like exhaust upgrades, could also affect insurance premiums as they could make you more likely to be involved in a high-speed accident. However, if you have modified your car to make it more secure, such as with a tracking device, this may reduce your premiums.

It’s important to be open and honest with your insurance provider about any modifications no matter how small, as not doing so could invalidate your policy. It’s also worth speaking to your insurer before you get any modifications to find out how they might impact your policy costs.

How does where I park my car overnight affect my car insurance premium?

Over three-quarters (76%) of vehicle-related thefts take place after dark, so where your car is parked overnight could have a significant impact on how big a risk you pose to your insurance provider. Typically, parking on the street is seen as riskier than on a private drive or in a garage. Yet this isn’t an option for everyone. If you don’t have a garage try and pick somewhere that’s well-lit and not too remote to leave your car.

How does my age affect my car insurance premium?

Age could affect how much your car insurance premium costs at both ends of the scale.

Young people between 17 and 25 often find themselves paying more – sometimes the insurance is as expensive as the vehicle itself – as statistically they’re more likely to claim and they typically have fewer years’ driving experience under their belt. There are ways of softening the blow, though. It might be worth considering a telematics car insurance policy, where your insurance provider monitors your driving and adjusts pricing accordingly, or adding an experienced named driver to your policy.

Older drivers may also find themselves facing higher premiums as the frequency of accidents rises after the age of 70.

How does adding named drivers to my policy affect my car insurance premiums?

If you’re a young or inexperienced driver, sharing your car with a more experienced driver and adding them to your insurance policy could bring the cost of your premiums down. This works on the basis that sharing your car means you’ll be spending less time driving it, which reduces your risk level. This is a great way for young drivers or drivers with little experience to save money.

But it’s important that whoever is identified as the main driver is the person who uses the car the most, otherwise you could be accused of ‘fronting’ and invalidate your insurance.

How does my driving history affect my car insurance premium?

Insurance providers will take into account how long you’ve been driving, any points on your licence and any previous claims when calculating your premium.

More experienced drivers are typically seen as a lower risk than those who have only been behind the wheel for a year or two.

You’ll normally be asked to share details of any claims you’ve made in the past five years, even if you weren’t at fault. This may not seem fair, especially if you weren’t at fault, but any claim can increase your risk of making a new claim in the future.

If you’ve not made any claims for a year or more, you’ll generally have accrued some form of no-claims discount, which can lower the cost of your premiums.

How does the type of cover I take out affect my car insurance premium?

You may think that the more comprehensive your car insurance, the more it will cost. But this isn’t always the case.

It’s typically drivers with higher risk profiles who opt for third-party cover, while those choosing a fully comprehensive policy might be deemed by insurance providers to be more responsible. There might also be extras added into a comprehensive policy, which you’d have to pay more for if you have a policy with less cover.

If you’re tempted to opt for a more basic policy, it’s worth comparing prices across all levels. You might find you can get more cover for less money.

How can I reduce the cost of my car insurance?

One of the easiest ways to save money is by comparing car insurance quotes from multiple insurance providers.

Once you have a list of prices, check to see which policy suits your needs. Some policies may include add-ons that you decide you don’t need. You could also increase your voluntary excess (there’ll be a compulsory excess too, so just make sure you can afford both if you need to make a claim).

But don’t just look at the final price either. While costs are important, and everyone wants to keep them down, it’s more important to buy a policy that suits you and your car.

Will insurance ‘add-ons’ affect my car insurance?

Usually, yes. It’s up to you to decide how important they are to you though. Removing add-ons from your policy could save you money upfront but cost you a lot more in the long run. That’s because if you don’t have them, and need to make a claim, you won’t be covered for the specific add on unless it’s part of your policy.

The following add-ons could impact the cost of your car insurance: