How car insurance is calculated

How car insurance is calculated

Car insurance is essentially a contract between you and an insurance company. You agree to pay premiums in exchange for financial protection against losses resulting from an accident or other damage to the car.

Car insurance can provide coverage for the following items:

  • Vehicle damage, including your vehicle or the vehicle of another motorist
  • Accidental property damage or bodily injury
  • Medical expenditures and burial expenses incurred as a result of an accident’s injuries

The specifics of what is covered are determined by your state’s minimum coverage standards and any other coverage options you want to include.

The amount you pay for auto insurance reflects how likely an insurer believes you are to file a claim. It also shows the potential cost of such a claim.

Factors that impact car insurance cost

Insurance companies will consider a variety of criteria when calculating your auto insurance cost.

Here’s a list of some of the criteria that should influence how much you pay:

Your age

When calculating vehicle insurance premiums, one of the more critical elements that insurers consider is age.

Younger drivers, on average, have less driving experience than older drivers and are thus statistically more likely to be involved in an accident.

This means that drivers between the ages of 17 and 25 pay the highest rates. The catch is that it is an unchangeable factor.

It is often assumed that drivers who reach the age of 25 automatically receive cheaper insurance rates.

This isn’t always the case, but young drivers have other methods to save money on their car insurance.

This includes the use of black box equipment, which can lower your costs if you can regularly drive safely.

Your job title/career

Specific vocations require you to spend more time on the road, drive at night, transport valuable equipment or work in high-risk regions.

Others, such as those that do not require much driving and are essentially risk-free, may be considered vocations for inexpensive auto insurance.

Because of the statistical nature of insurance pricing, similar vocations may have a noticeable variance in price.

For example, being a ‘company director,’ may turn out to be more expensive than being a ‘director of a company.’

That is why it is critical to be as exact as possible when defining your occupation.

The vehicle you drive

As you might assume, the type of car you drive can significantly impact how much you spend on insurance.

There are various insurance costs based on the type of vehicle. If it’s a brand-new sports car or a luxury 4×4, for example, the cost of repairs or replacement could be far higher than the cost of a conventional city car.

When looking at this, there are a few factors to keep in mind:


The more valuable your car, the more it may cost to replace if it is stolen or totalled in an accident.

More expensive cars may also be more expensive to fix, especially if they are uncommon and have expensive spare components that are difficult to obtain.

However, don’t think that it’ll be cheap to insure because your car isn’t worth much.

Insurance covers more than just damage to your vehicle; it also protects other road users from any accidents you may cause.


The faster and more powerful your vehicle, the more probable it is to be involved in a costly accident.

In general, the larger your engine, the more expensive your insurance will be. One approach to save money is to buy a car with a smaller engine.


If you change your car to make it more powerful or look different, you must notify your insurer immediately.

It will almost certainly raise your costs. However, if you do not inform them, your coverage may be rendered null and void if you claim the future.

Most insurers offer a list of adjustments that they will accept without increasing the cost of your coverage and those that will cost extra.


Alarms, immobilizers, and other built-in security devices may help you save money by deterring criminals.

Participating in a neighbourhood watch program may potentially reduce the cost of your car insurance (and home insurance too!)

Where you keep your automobile when it’s not in use may also impact how your insurance is calculated.

Your car is more prone to theft if parked on the street or away from your home – if you store your car in a secure garage or car park, you may find that your policy cost is reduced.

Your residence

Your postcode also affects the cost of cover massively, and if you move, you must notify your insurer immediately.

You will most likely spend more if you reside in a densely populated location where the danger of an accident is more significant. The same is true if you live in an area with a high level of car crime. If you reside in a rural location with low crime, your insurance premiums may be reduced.

How do you drive your car?

If you use your car for commuting, you may pay more for insurance than if you leave it parked at home during the week. This is because you will be driving more frequently and on busier routes while commuting.

Your annual mileage is also taken into account. After all, the more you drive, the more likely you will be involved in an accident and the greater the likelihood that your automobile will require repairs.

The sort of insurance you purchase

There are three types of automobile insurance: comprehensive, collision, and comprehensive.

  • Only third-party.
  • Third-party, fire, and theft.
  • Comprehensive

Third-party only insurance provides the most basic level of protection. In contrast, comprehensive insurance provides additional layers of coverage and is the most robust policy available.

While you may believe that the higher the coverage you choose, the higher your premiums will be, this is not necessarily the case. It’s a good idea to compare the costs of each level of coverage, as some drivers may find they can obtain more for less!

However, always read the policy conditions thoroughly before paying since you don’t want to end up with insurance that isn’t right for you and your needs.