How Is Car Insurance Calculated?

Ranging from the astronomical to the dirt cheap, it’s an understatement to say that the cost of car insurance varies slightly from person to person. The price of car insurance can often feel like it’s been plucked out of the air. Here’s how car insurance is actually calculated and what you can do to get a better deal.

Car insurance varies massively in price depending on a whole host of factors.

Basically, car insurance quotes are worked out according to how risky a driver the insurance company believes you to be. They obviously don’t want to be paying out loads of money because of clumsy drivers, so they’ll minimise their financial risk by upping the prices for people they consider to be those types of driver.  

As you'll see, most of the factors are related to the driver and not the car so leasing a smaller or cheaper car might not have a massive impact on the overall cost of your car insurance. However, if it's time to choose a new car, you should always pay attention to the insurance group it falls into.

Here are some of the main ways that car insurance is calculated.


It’s an open secret that car insurance is disproportionately weighted against younger and inexperienced drivers because they’re seen as a greater risk than others. These types of drivers will find that their premiums are much higher than more experienced or older drivers.

Previous claims or no claims bonuses

For each year that you’ve avoided an accident and not claimed on an insurance policy, you’ll get a ‘No Claims Bonus’. This shows insurance companies that you’re considered less of a risk and the result can be significantly lower premiums. If you have had to claim on your insurance policy previously, expect to have to pay a little bit more on your policy.


Some locations are considered riskier to drive in than others, so the result is that insurance can be more expensive in different parts of the country. Generally insurance will be costlier in London and the South East, and cheapest in Scotland and North East.

Your excess

Voluntary excess is an extra payment that you make which reduces the potential claim that you can make but lowers the overall premium. Generally, the more you offer in excess, the less your premium overall.

How secure your car is

If your car has a decent security system, you might benefit from a cheaper insurance policy. This is because insurance companies see high quality security systems as a good deterrent to theft.

Your job

Some types of job might mean that you spend a lot of time driving, like couriers, private hire drivers or care assistants. As a result, insurance companies might raise the price of your insurance to compensate for what they consider to be the extra risk associated with insuring you.

The insurance group your car falls into

All cars fit into one of 50 insurance groups set by the Group Rating Panel. This will affect how much your policy costs. Generally, the lower the group number, the cheaper the car to insure.