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7 Factors that Affect Car Insurance Premium

Anyone who owns a car in India should be well informed about the importance of car insurance policies.

For any new or used car to be legal in India, it needs to be covered under a valid car insurance policy since car insurance is a mandatory document under the Motor Vehicles Act, 2019.

Besides the compulsion, a comprehensive car insurance plan is a crucial investment, as it financially protects your vehicle against unforeseen events such as theft, accidents, fire, natural and man-made disasters.

Apart from that, just knowing that you have car insurance in place and your vehicle is insured against any unexpected event may give you peace of mind.

Car Insurance Premium

The car insurance premium is the amount you pay to the car insurance provider in order to purchase or renew your car’s insurance policy.

In return, the insurance company provides protection and coverage to your vehicle from any financial liability you might incur in case of an accident, theft, floods, fire, or other natural and man-made disasters.

The nature of the transaction in the car insurance industry is that you pay the premium and receive the policy documents. 

The car insurance premium is mostly calculated keeping the Insured Declared Value (IDV) or the current price of your car in mind.

Still, the commercial value of your car is not the only thing that insurers look at while deciding on the insurance premium.

A few other factors determine the premium for your car insurance policy.

Some factors that may affect your car insurance premium are as follows: 

1. The make and model of your car

The make and model of your car may have some effect on the premium of the insurance. The premium for cars that have a higher cubic capacity of the engine may differ from the cars with lower cubic capacity.

Many car models are priced according to the fuel intake, and it can also affect the premium rates, for example, cars that run on gas or CNG may have different premium rates than cars that use petrol, diesel, or electricity.

The premium for insuring a luxurious sedan will be higher compared to a hatchback. More such things as the car manufacturer, type of the car, etc. have a direct impact on the car insurance premium.

2. Insured declared value (IDV)

Insured Declared Value or IDV refers to the maximum claim your insurance provider will pay if your vehicle is damaged beyond repair or is stolen.

Generally fixed by the insurer, IDV is the present market price estimation of your car after deducting the depreciation value.

The IDV of the car diminishes with the fall in the value of the vehicle due to depreciation. However, the higher the IDV higher will be the insurance premium.

3. Age and gender

Factors such as age and gender are the crucial and major reasons that decide the premium of car insurance. Women are considered safe drivers compared to men, and hence some insurance providers even offer discounts on premiums for female policyholders.

A single person has to pay more premium amounts than someone married. One other personal factor that contributes to affecting car insurance premiums is the age of the customer.

People between the ages 50 to 65 years are required to pay the least premium, while customers under the age of 25 need to pay the highest premium. 

4. Type of coverage

The premium of your car also depends on the type of coverage you opt for; the premium for your car insurance could be higher or lower accordingly. A basic third-party policy is mandatory by law in India. It offers cover against third-party damages at a lower premium.

However, a comprehensive car insurance policy covers third-party damages and other essential covers at a little higher premium. The price of your car insurance premium also increases with the add-ons that you purchase such as roadside assistance, engine protection, zero-depreciation cover, etc.

5. Safety features

With an efficient car lock or anti-theft system installed, you may be eligible for a discount on your overall car insurance premium. Car alarms and other kinds of anti-theft devices alert the owner (by sounding an alarm, etc.) in any event. More advanced cars have an inbuilt GPS that helps locate the car if it is stolen. 

6. Add-ons in the policy

Add-on covers are an extension to the basic coverage, they offer extra security with a little bit extra price. Car insurance policies often offer a number of add-ons, such as roadside assistance, engine protection cover, medical cover, passenger cover, etc. The more add-ons you purchase, the higher your cost of premiums will be.

But the crucial thing to remember is that having add-on covers may give your vehicle extra protection with only a trivial additional fee over the cost of the insurance premium, and it may come in handy and prove to be a significant investment. 

7. Your current location

The factor of location may play a crucial role in deciding the cost of premium of your car insurance policy. Buying a car insurance policy in a metro city may cost you more than insuring your car in a tier 3 city.

There are many reasons for that such as the vehicle is more prone to damage and accidents in an urban area with increasing traffic, congested roads, etc.

One other reason could be the cost of living, which is much higher in urban areas than in rural areas, indicating the expensive prices of cars and high repair costs. All this ultimately leads to higher premiums.

The above factors are the most crucial when it comes to affecting the cost of premiums in car insurance policies.

The above points may help you make an informed decision while buying a car insurance plan to cover all your insurance needs at a premium suitable for you. 

Ajeet Sharma, the founder of Financegab and a well-known name in the field of financial blogging. Blogging since 2017, he has the expertise and excellent knowledge about personal finance. Financegab is all about personal finance which aims to create awareness among people about personal finance and help them to make smart, well-informed financial decisions.


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