Types of Car Insurance
Why do costs of motor insurance cover vary so much?
Each Insurance Company employs underwriting staff who are responsible for
underwriting the costs that the insurance company may have to pay out to the policyholder or third party. Underwriters have a wealth of statistical information, and it is from this that they calculate the likely (risk) cost of insuring a particular vehicle for a particular individual.
You may disagree with some of the points below. However, the cost of motor insurance in the UK is largely dependent upon the following main factors:
Your age - The younger and less experienced a driver you are, the more likely it is that you will have an accident and make a claim on your insurance policy.
No Claims Bonus / Discount - Each year that you insure your car, and do not make a claim on your policy, you receive what is called a "no claims bonus" (or discount). This can allow you a discount of up to 70% off the cost of your insurance (if you have driven accident and claim free for five years). So, the more "no claims bonus" that you have, the cheaper the cost of the insurance.
You can apply to have a protected no claims bonus, so that in the event of you having an accident you do not lose your "no claims bonus". Most Insurance Companies will offer "protected no claims bonus" terms in their policies however, this will cost more (but is, in most cases, a worthwhile additional sum to pay - after all, a 40% no claims bonus on a motor insurance policy costing £2,000 before discount, is worth an £800 per annum saving. So a small additional premium of (say) £50 to protect your "no claims" bonus is often a good investment).
Insurance Group - Most motor cars are given an insurance group ranking - which is an analysis by the motor insurance industry of the level of risk involved with each car type and group (often based purely on the likely repair costs). A high-powered car will be a group 20 (the highest possible risk, and therefore the most expensive car to insure) whereas a small "mini" hatchback may only be a group 4 (and therefore a cheaper car to get insurance cover on). Most motor dealers and garages are able to advise you of the likely insurance group rating on each car.
Engine size - The more powerful a car is, the more likely it is to be involved in high speed accidents (which cost more to repair than lower speed accidents).
Your occupation and how many miles a year you drive - What you do for a living can make you a higher risk. An example would be someone who travels regularly in their car, as part of their job, is seen as having a higher risk of being involved in an accident, than someone who only uses their car at weekends.
Where you live and whether the car is garaged or parked on a road. The density of traffic in the area that you live in can dictate whether you are more, or less, likely to have an accident. In addition, theft and break-in to cars is more prevalent in certain towns and cities. Of course, if your car is simply parked on the street (rather than being put in a locked garage each evening), then this too can have a bearing on how susceptible your car is to theft or break-in.
The value (cost) of your car and the make and model - The value of your car is a factor in the risk that the Insurance Company is taking. If your car is a £50,000 "super-car" then you can expect to pay a higher premium than someone driving a £5,000 "super-mini". After all, if either car were involved in a serious accident, the Insurance Company will be left with a bill for £50,000 or £5,000. In addition, some cars are cheaper to repair than others (availability of parts, specialist body-shops for more specialist cars etc). Each of these factors plays a role in determining the cost of your motor insurance policy.
Whether you have had a history of accidents or motoring offences - Fairly obvious - if you have spent your entire driving experience careering from accident to accident (and thus costing Insurance Companies lots of money) then you can expect to pay a far higher premium than someone who has been driving for ten years without any accidents. In addition, if you have speeding fines and reckless driving fines (i.e. penalty points on your license) then the Insurance Company will charge you at a higher rate than a more "sedate" driver.
Benefits included in your motor insurance policy - Many insurance companies offer benefits that other insurance companies do not offer. The most common example is you being supplied with a free courtesy car in the event that your car is off the road due to an accident. There is a cost associated with the benefits that you receive in your motor insurance policy. The more the benefits, the higher the price that you will pay.
The excess charge that applies to your policy - Insurance companies issue policies that have a "compulsory excess" (and often allow for a voluntary excess). An "excess" is the amount that you are responsible for, in the event of you making a claim on your policy. Lets take the example of you having a policy with a £100 excess. If you have an accident and the repair bill is £500 then you have to pay the first £100 and the Insurance Company will pay for the balance of £400. (Of equal importance is that if your policy has a £100 excess, and you chip the paintwork of your car, resulting in a £50 repair bill, you cannot claim from your policy as the amount of the claim is lower than the excess amount of £100). You can see that the larger the excess (i.e. the amount that you have to pay if you make a claim), the less that the Insurance Company will have to pay out. So, policies that have large excesses are often less expensive than policies with smaller excesses.
In addition, whilst most car insurance companies policies have a compulsory excess, you can also agree to take a voluntary excess charge, over and above the amount of the compulsory excess. If your policy has a £100 excess charge and you agree to an additional excess of (say) £500, then in the event of a claim you have to pay the first £600 of the claim, and the insurance company has to pay for any balance above this amount - a voluntary excess can often reduce the cost of your motor insurance policy however, you will have a larger amount to pay in the event of you being involved in an accident.
Car security (alarms, immobilisers etc) - It's a sad fact that car theft and break-ins are commonplace within most towns and cities. If you have fitted a car alarm and immobiliser it is less likely that your car will be stolen - you can therefore expect to pay less for your motor insurance policy than someone who has no security device on their car.