Our guides cover anything from car insurance to business insurance. If you’re after some good help and advice from questions such as what’s the difference between Comprehensive and third party cover and how much does electric car insurance cost.
Every year, an increasing number of people buy guaranteed over 50 life insurance as a way of leaving a cash lump sum to their family when they die, either to help with funeral costs, pay off...Read this guide
If you are 17 and just trying to find car insurance for the first time you are probably being pretty astounded right now about how...Read this guide
The short answer is “No, but you used to be able and you might be able to in the near future.” It used to be the case that for a male driver, adding a...Read this guide
Since you receive your car insurance day by day throughout the year, you would think that you could pay for it as you use it, rather than...Read this guide
Most of us consider the likes of car insurance, pension schemes and utility bills as part of our outgoings, but the majority of...Read this guide
There are 3 primary types of car insurance; fully comprehensive, third party (fire and theft) and third party only. Of course, third party with fire and theft is exactly the same as third...Read this guide
Having antique swords and guns on display in your home can certainly lend a touch of authentic period glamour to your decor; however, as is the case with other antiquities like...Read this guide
There was a time when having a single car was a luxury and only the rich would have more than one, but in recent years it has become more and more common for families to have 2 cars or even...Read this guide
In the past the answer would have been no, but now a days you can indeed put more than one car on the same car insurance policy. Not every policy offers this option, there are just a handful of multi...Read this guide
There are a few reasons why convicted driver’s insurance is so expensive. First of all, remember that insurance is all about risk. Insurance companies...Read this guide
Monthly car insurance is a relatively new option on the insurance market and it falls somewhere between temporary insurance and regular car insurance in terms of how it works and what it is useful for. The principal is that...Read this guide
Getting on the road for the first time, when you are 17 or maybe 18 is a real challenge to say the least; first there is the driving test itself, with all...Read this guide
By the time you start uni you are generally 18 or older and chances are good that you have a driving license and probably a car too...Read this guide
If you are in need of vehicle insurance, there are five things to keep in mind when searching for the best deal. By taking the time to consider the five things discussed briefly below, you...Read this guide
Insurance is a pretty big topic really, which is why we will be breaking it down into several smaller, more manageable guides over the following pages. In fact it is such a big topic that there are probably a few types of insurance you don’t even know about.
Essentially, any time you have any risk of loss, chances are good you can insure against it. So car insurance is an obvious one, since driving is one of the riskier things we do in our day to day lives. We also have insurance in case we are victims of crime or against any other unfortunate event which befalls us.
Understanding How Insurance Works
Everyone knows how insurance works; you pay a premium set by the insurance company (hopefully you shop around for the best deal first of course) and if some predefined event happens they pay out some amount, generally enough to cover all or most of the loss incurred.
But understanding how the insurance companies calculate risk and hence premiums is helpful as it may save you money later.
Risk Vs Reward
The insurance company makes money when the bad event doesn’t happen. So if you don’t have a car accident they don’t have to pay out. They keep your premium and that is their profit (after overheads are paid).
If you do crash, get robbed or have a fire etc… The insurance company has to pay out. They still keep your premium, but the cost of the pay out may be more than your premium and in that instance they make a loss on your account.
Of course they have thousands of customers and as long as on average the amount they take in premiums is more than they pay out in claims they should make a profit. The first step is figuring out how risk your account is.
Risk is worked out using statistics for the most part. Hypothetically, if you have a 10% chance of making a claim each year, and the cost of a claim would be £1,000 then your insurance company would expect to pay out £1,000 every ten years, or £100 a year on average.
In this instance they would have to charge you £100 plus some amount to cover their overheads and hopefully leave enough for their profits.
In the real world your claim amount would be much harder to predict. Taking car insurance as an example – you could have a small bump which costs £200 to fix or you could write off someone’s Ferrari worth £200,000. And on top of that you could get sued for a few more thousand too.
This is why insurance companies look for any type of correlation they can to accurately assess not only how likely you are to claim but how large a claim might be. If you live in an area with a lot of crime your house insurance will be higher, if you drive a faster car your car insurance will be higher…
Even having the wrong job can cost you money if for instance Engineers tend to have more expensive car accidents than HR Managers they will pay a higher premium accordingly.
Other Things That Affect Insurance
As we mentioned above, on top of the expected average cost, the insurance company has to add some amount to cover their overheads and their profit. This is why medium to smaller companies often have lower premiums than the big ones who advertise on TV all the time. Someone has to pay for those adverts. Company X may not be on comparison websites but they pay a lot to advertise that fact instead!
Another factor is variance
Ok, so in our example above, you might expect on average to claim £1,000 every ten years, but what if you have a run of bad luck? You could end up claiming £2,500 in that ten year period!
Insurance is a game of risk and it is possible for an insurance company to have an ‘unlucky’ year where they actually lose money or at least fail to make a profit. The larger the company the better their risk is spread, and hence the more they can risk squeezing their margins.
As a result, you often find very small, specialist companies are not actually as competitive, particularly if you are a high risk customer (such as a teenaged driver). You should of course shop around, but you will often find it is the medium sized companies that you have never heard of who work out cheapest.