Confused about car insurance

Confused about Car Insurance Costs?

Have you ever found yourself looking at your car insurance quote in dismay, wondering just why it is costing you so much? Well, if you have, then try not to feel too downhearted as recent research from the Co-op Insurance arm would indicate that you are far from being in the minority on this subject. In fact, the research suggests that around 48% of motorists find car insurance to be a confusing subject.

This research has led Co-op Insurance to produce a brief, clear and understandable video to show people just how car insurance premiums are calculated and why they cost as much as they do. So, if this is a subject that you have often wondered about then why not take a few moments to watch the video and perhaps after watching, you might not be quite so begrudging when you watch your premium exit your bank account next month. Here’s the video we’re talking about:

As we can see then, your car insurance premiums take into account a lot of different factors which you might not have considered.

You might not have thought about Insurance Premium Tax (IPT), for example. This is a tax that the government adds to lots of different types of insurance and this makes up around 9% of the total cost of your insurance premium. Insurance Premium Tax has jumped significantly in recent years and maxed out at 10% in the chancellors most recent budget.

Insurance Premium Tax isn’t the only thing that is bumping up the cost of car insurance, however. The rise in personal injury claims in recent times is another thing that has to be factored into the cost of your car insurance premium. This is probably the most well-known and widely accepted cause of rising insurance costs but it still does not stop many people from feeling the agony of having to pay the extra money each month on their premium.

One other thing to consider is the fact that there are a lot of new and expensive cars on the road these days, perhaps more than there might have been in times gone by. So, while you might be driving around in a car that is worth just a couple of thousand – or even a couple of hundred – pounds, your insurance company has to account for the potential eventuality that you might well end up in an accident with a car that could be worth hundreds of thousands of pounds. This is why owning a cheaper vehicle yourself might not bring down the cost of your car insurance premium as much as you might expect it to.

Hopefully, then, you now have a better idea of how your car insurance premium is calculated and why it sometimes costs a little bit more than you might have expected it to. It’s never nice having to watch your premium leave your account each month but if you at least know where the money is going, then this might just help to ease the pain a little, I hope!

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One Response to Confused about Car Insurance Costs?

  1. Gary says:

    A good post for those confused about car insurance. It can be confusing but I think that’s partly because people think about it in the terms you describe, i.e. accidents, price of cars, age and all the other rating factors that insurers use to come up with a sensible risk premium calculation. However after doing all of this it quite often comes down to competition, reserves and other internal and external market factors.

    We would like to think that our premiums are derived super efficiently based upon risk but in reality insurers are just businesses and need to make money. If they suffer a loss in some other part of their business they’ll be looking to raise premiums elsewhere to continue to make money! It doesn’t matter what risk premium Insurer A calculates if they want the business and Insurer B is cheaper they are going to drop their prices to compete.
    Gary recently posted..Simulating future interest ratesMy Profile

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