How Are Car Insurance Policies Calculated And What It Means For Over 50s?
If it seems like your car insurance premium just keeps on going up, you may be thinking to yourself, how on earth do they come up with that price? Does this sound familiar? If that’s the case we thought we’d shed some light on the situation, and look into the ways that your car insurance is calculated. It can mean good news for some people over the age of fifty, as you’ll see for yourself.
Whilst the way car insurance is calculated can vary between providers, there are some core indicators that most, if not all, insurers use to establish the cost of a person’s premium. One of these indicators is a person’s age, which we will look into in a greater detail as older drivers can take advantage of this with much lower premiums than middle aged and younger drivers.
So, what are the other key indicators?
- Car Insurance Group
Your car will belong to a specific insurance group based on its value and performance. Whilst this is not related to the risk of the individual, it does need to be considered as it is the vehicle on which one would be making a claim. Therefore, the more expensive and high performing the car, the more your premium will cost.
- Level of Cover Required
There are different levels of car insurance, including Third Party Only, Third Party, Fire and Theft, and Fully Comprehensive. The more comprehensive your cover, the more your policy will cost.
- The security of your vehicle
Where is your car kept at night? If it is stored away in a secured garage and if it is fitted with an alarm then you’ll be paying less than if the car did not have an alarm and was parked on a road. The reason for this is due to risk. There is heightened risk of making a claim if your car is visible, without an adequate deterrent.
- Annual Mileage
The amount of driving you do makes a huge difference. For those that are on the road all the time, clocking up tens of thousands of miles a year, you’ll pay a lot more than someone who just uses their vehicle occasionally and only locally.
- Driver’s History
This is one of the main indicators when calculating the value of a car insurance policy. A driver that has never sought compensation is rewarded with a no claims bonus. Conversely, someone with a history of claims, endorsements and points will find themselves with much higher premiums.
The amount you wish to pay upfront will have a bearing on the overall cost of your premium – the higher your excess, the cheaper the policy.
This is only applicable for some jobs, so won’t have a huge bearing on all car insurance premiums. However, journalists, sportsmen and students are likely to pay higher rates than typical office clerks.
What about gender?
Not anymore. Whilst this used to be a factor, the European Court of Justice ruled in March 2011 that a person’s gender should have no bearing on the cost of their premium (for more information, see: BBC).
What about age?
As mentioned, your age can have a huge impact on the cost of your car insurance premium. So much so, it is one of the leading indicators when insurance companies calculate the cost of a policy.
Since April 2012, the Association of British Insurers (ABI) agreed to publish aggregated industry data that is relevant to the use of age in calculating car insurance premiums. As with all insurances, the value of the policy is based on risk (the likelihood of that person making a claim). What one of the most recent reports (Source: ABI Age and Insurance Report) tells us is that the impact of age is important to both younger, and older drivers. Additionally, when it comes to car insurance, it is your exact age that is used as a correlation with risk, as opposed to age brackets as used in other insurance sectors.
For older drivers, generally speaking, the risk of claiming reduces significantly as you enter your 50s and late 60s, but then suddenly starts to increase over the age of 75. From the ABIs data, it is understood that those aged between 17 years old and 20 years old are more than twice as likely make a claim compared to 61 – 65 year olds. When comparing these age groups again, younger drivers have an average claims cost that is six times higher than their older counterparts. For more experienced drivers it is also worth noting that the cost of a claim for customers over the age of 85 was almost double that of customers aged 61 and 65 years old.
Age counts, but don’t forget the rest
It is worth noting that you must consider all factors when calculating your car insurance premium. Just because you have reached a landmark age does not mean that you’ll suddenly see a fall in the cost of your cover. Sure it’ll help, but if you have made claims in the past or have driving convictions against your name, the chances are you’ll still have to pay fairly high premiums.
We hope this has shed some light on how car insurance premiums are calculated. If you have any questions, we are always more than happy to answer them, so feel free to get in touch by leaving a comment, or contacting us directly.