Your car insurance premium explained

Find out how we work out the cost of car insurance

How insurance works

We use a number of factors to work out the price of your insurance. There are personal factors, like the type of car you drive, your age and where you live – these can impact how likely you are to make a claim. And there are external factors, like changes in legislation, the cost of parts and labour and the rising cost of claims.

Your premium is pooled with other policyholders’ premiums, and if you make a claim, we pay it out of that pool. If many people claim at once, the money in the pool has to go further, which means prices go up.

Watch our video and read more below to explain how we work out the cost of car insurance.

At LV=, we want to make sure you're getting the right level of cover for your needs – at a price that's affordable for you. Watch our video for everything you'll need to get a quote and hit the road with LV= car insurance

View video transcript

Wondering how LV= work out the cost of your car insurance?
At LV=, we want to make sure we’re giving you cover that meets your needs, at the best price we can offer you. To get started, here’s what we’ll need to know…
A bit about you and any other drivers named on your policy. Things like your name, address and date of birth, plus your driving licence details and information on any claims and endorsements you might have.
We’ll also need to know how much experience you have behind the wheel. The more experienced you are as a driver, the less likely you are to make a claim, so we’ll take this into account when calculating your premium. Remember, you must be a UK resident and legally entitled to drive.
Next, we’ll need to know some details about your car, like the age, make, model, engine, battery size, mileage, and number plate if you have it. You’ll need to let us know about any modifications too. The type of car you drive, affects how much it’ll cost to insure. For example, a large, powerful, expensive car tends to be more expensive to repair or replace.
Where you live affects how much your car will cost to insure because we’ll take a look at the vehicle crime levels in your area. We’ll also consider the risk of an accident in your area based on the population or how busy the roads are.
What you use your car for also affects your price. Vehicles used for business purposes will likely cost more to cover as you may be using your car more often than someone who only commutes to a single place of work. We also consider your annual mileage, as the more you drive, the more likely you are to be involved in an accident.
Finally, your excess is a factor when it comes to the cost of your premium - having a higher voluntary excess could reduce the amount you pay for your cover.
We’ll send you a renewal invite 30 days before your policy is due to renew and we’ll make sure your renewal price is the same or cheaper than if you were a new customer with a like for like policy with us.
So you can join the 7 million customers we currently insure and be confident we’ve got you covered.

Your age and how much experience you have behind the wheel

Icon of a car with a P plate on the side of it

Our experience shows that younger drivers are more likely to be involved in accidents and make claims than any other age group. The older and more experienced you are as a driver, the less likely you are to claim (until you get into your late 60s / early 70s when the risk starts increasing again). This is reflected in the price you pay.

The car you're looking to insure

Icon of a green car next to a bigger white car

It'll come as no surprise that the type of car you drive affects the cost of your premium...

Large, powerful cars are usually more expensive to insure, because the cost to repair or replace them is higher. Low powered cars, or cars with safety features like autonomous emergency breaking (AEB), are often cheaper to insure because studies show that they're less likely to be involved in an accident.

The number of cars you insure on the same policy also has an effect on your price; we offer a discount when you buy multi car insurance.

Where you live

Icon of a car and in the background is a city

Your neighbourhood has a bearing on the cost of your car insurance. Normally, in areas where the risk of accidents is greater (typically more urban and population dense areas), you’ll pay more. The same applies if you live somewhere which has high levels of vehicle crime.

When and how far you drive your car

If you use your car for business purposes, you're likely to pay more for cover, as you'll be driving more when the roads are busy. Your annual mileage is also an important consideration. After all, the more you drive, the more likely you are to be involved in an accident.

Whether or not you've built up a no claim discount

Icon of a car with a ribbon attached the the grill

If you don't make a claim on your insurance, it's seen as a sign that you're a safer driver and so you're often rewarded with a No Claim Discount (NCD) each year. The more NCD you have, the better your price. If you do have any claims or driving convictions then this will be reflected in the price you pay.

Changes in legislation or regulations

Policy wording with a magnifying glass and some weighing scales

Legislative and regulatory changes can have an effect on the price of your car insurance premium. From 1 January 2022, all insurers are now adhering to a new pricing regulation set out by the Financial Conduct Authority (FCA). All insurers will make sure that existing customers never pay more than a new Car or Home customer for a like for like policy on the same day.

There's also the personal injury discount rate - or Ogden discount rate - which was announced in February 2017. This legislation means insurers now have to pay out bigger lump sums for personal injury claims. This has meant an increase in annual premiums.

Changes in taxation imposed by the government can also affect your price: Insurance Premium Tax (IPT) is a tax on general insurance premiums and has increased incrementally since it was introduced.

The rising costs of parts and labour

Icon of a man looking undernath the bonet of a car. There is a car in a garage in the background

Just like everything else, the cost of car parts and employing skilled mechanics to repair damaged cars is going up too. Naturally, this has a knock on effect on the price of your insurance premium.

The rising cost of claims

Abacus, piggy bank and a stack of money flourish

Millions of claims on car insurance policies are made every year.

As cars become more and more sophisticated, the costs of parts, labour and the expertise needed to repair them goes up. But the cost of a personal injury claim is even more expensive than 'bent metal'.

Making sure someone injured in a car accident receives enough money to support them during their recovery is important. As most insurers pay out the majority of the premiums you pay in claims, prices have to go up to cover these costs.