Understanding Car Insurance Costs

So, you’ve gone out and bought yourself a low cost vehicle with the expectation that this will lead to lower car insurance premiums too.

When you come to get a quote for your car insurance, however, you get a surprise when you discover that your premium is the same as it was before, even though your old car was actually a much more expensive one!

The above is just one scenario in which drivers can become completely confused by the cost of insuring their car, and there are many other scenarios just like it.

So, why is car insurance so confusing and dare I say it, expensive? This is the subject of a new video which has been recently released by the Co-op.

This short video aims to inform motorists and give them a much better understanding of why car insurance costs as much as it does and also what the money from your car insurance premium actually goes towards.

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Here are just a couple of points mentioned in the video that you might find of interest. There are many other points mentioned too, but we thought we’d highlight these just to whet your appetite.

Insurance Premium Tax

Understanding Car Insurance Costs - Calculator

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Did you know that a hefty chunk of your car insurance premium is actually made up of a government tax called ‘Insurance Premium Tax’?

Insurance Premium Tax (IPT) is a tax on general insurance premiums, including car insurance and according to the video from the Co-op this tax accounts for around 9% of the cost of your insurance premium. Insurance Premium Tax has risen drastically in recent years, with a hike in November of 2015 taking it from 6.5% to a whopping 9.5%.

This was then followed by another hike – which was announced in the chancellors 2016 budget – which will take the standard rate of IPT to 10% later in the year.

It’s Not Just Your Car That’s Being Covered

Understanding Car Insurance Costs - Ambulance

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Another point to remember when it comes to premium costs is that it is not just your own vehicle that is being covered by the premium.

Firstly, we have to take into account the potential value of any car you may find yourself damaging in the event of an accident.

Sure, you may only drive a Fiat Punto but what would the cost of a claim be if you were to crash into a Ferrari or a Lamborghini?

On top of this, we also need to consider the potential for injury to both yourself and a third party if an accident were to occur. If someone were to sustain a life changing injury, for example, then the cost of meeting the compensation costs on a claim like this could really skyrocket!

So, the next time you are doing your online banking and are grudgingly watching your car insurance premium leave your account, rather than getting yourself too wound up about it, why not take a moment to review the Co-op video again to remind yourself of just where your money is going.

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