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How is your motor insurance premium worked out?

Updated on August 4, 2017

It all depends how big of a risk you are to insure.

It all comes down to two basic factors:

a) How likely are you to make a claim?

b) And if you do, how much is it likely to cost.

Young Drivers.

The reason why drivers under 25 pay such very high premiums and why their policies carry such a high excess is because they are far more likely to be involved in an accident than any other age group. They are inexperienced and all too often reckless when they are behind the wheel. 1 in 4 accidents involve drivers under 25 years of age and 99% of all accidents are down to driver error. On top of this young drivers (men usually) like to driver big and powerful cars often with some sort of modification intended to make it look bigger and more powerful than it actually is. Consequently when a young driver does have an accident the cost of the claim to the insurance company will be considerable.

The Business Driver.

This is why the businessman also pays a high premium for his insurance policy. Not because he is a bad driver but simply because he is driving long distances up and down the motorway everyday. And the more he drives the greater the probability that he will be involved in an accident and in all likelihood a high speed accident. And if he also drives a prestige vehicle this will all increase the cost of any claim significantly. Repairing a damaged BMW5 that was involved in an accident at 70 mph is far more expensive to repair than a Micra.

The Commuter.

On the other hand a commuter who travels to work everyday in (typically) a small family car will pay far less for his policy. They travel short distances at set times along a route they know very well at modest speeds. Consequently the risk of insuring this category of driver is reduced.

The Social Driver.

The housewife and the OAP will pay the lowest premium of all. They hardly use their cars at all and when they do it’s for going shopping once a week and for occasionally visiting friends. They aren’t even on the road often enough to have an accident!

So if you want to save money on your insurance premium it helps if you are: over twenty five, drive an ordinary family car (1.2 or 1.4cc) and only drive it once or twice a week to the local shops.

But of-course there are other factors that an insurance company will take into account when calculating your premium.

a) Where you live has a bearing. If you live in a prosperous area that will increase the cost of your premium. A leafy suburb will provide a car thief with potentially far richer pickings than a street on a working class council estate. If you live in London you will pay far more for your insurance than if you lived in the Scottish Highlands simply because there are so many other cars on those crowded streets you can have a crash with.

b) If you drive a VW Golf and your insurer has had a lot of claims from Golf drivers that year it will also increase your premium.

c) If you live in, lets say, Cheshire and your insurance company has had lots of claims from people in Cheshire then that again this will increase your premium.

d) Something like 2 million vehicles a year are damaged by vandalism and some postcodes are notorious for their record of vandalism. And do you live near a pub? Many cars are vandalised or broken into by people leaving pubs.

e) What do you do for a living? Do you use your car at night because of your work. If you do your insurance company might not even want to insure you at all.

f) How many convictions do you have on your driving licence? Again, an insurer may refuse to sell you a policy if you have had a conviction for drink driving. And if they do it will certainly be expensive.

g) How many accidents have you had in the last three years? A bad driving history will certainly increase the cost of your premium.

h) Are there any modifications to your car? If you do it will increase the premium for three reasons. First, a Ford Fiesta with modifications is far more expensive to repair than one without. Secondly, it is far more likely to attract the attentions of car thieves. And thirdly an insurance company will assume the driver is probably a bit of a ‘boy racer’ and boy racers are far more likely to have a crash.

i) A major cost to an insurance company are accidents which include personal injury claims . High speed impacts, accidents in which a vehicle has hit a tree or a wall, an accident involving pedestrians, cyclists and motor bikes will almost certainly result in an injury claim. But the truth is no matter how minor the crash may have been a claim for personal injury can never be discounted. Indeed the claim for personal injury may cost an insurer more than the repairs to the vehicles involved.

j) Hire . The innocent party in an accident will be entitled to a hire vehicle “suitable for their needs” free of charge until the repairs to their own vehicle are completed. Again this can run into thousands of pounds especially if the innocent party needs a prestige vehicle.

So to have any chance of keeping the cost of your insurance really low it will help if you are: over twenty five, you have no young drivers on your policy, you drive a small family car with no modifications which you only use once or twice a week for short journeys to the local shops or to visit friends, you live in the Scottish Highlands, you have a clean licence and have had no accidents or claims in the last five years (and therefore maximum No Claims Discount).


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