Will the Value of Your Car Affect Insurance Premiums?
Have you ever wondered why your car insurance premium keeps decreasing during every policy renewal? This happens because your car’s present market value is one of the critical things the insurer factors in for deciding the premium. A car’s value is directly proportional to the premium amount. You will have to pay more to buy insurance coverage if you own an expensive car model. This is because the cost of components and damage repair charges would be higher for such a model compared to a lower-priced car variant. So, if you own an SUV, you need to shell out a higher value than the owner of a hatchback.
The process of premium calculation based on the car’s current value is transparent and governed by the norms laid down by the Insurance Regulatory and Development Authority of India (IRDAI). So, keep yourself covered with a suitable car insurance policy, even with high premiums.
How Does Your Car’s Value Affect Its Insurance Premium?
You have to pay a higher insurance premium if your car is expensive. This is because:
- Expensive models of the car come fitted with costly components, and after any accident, the insurer will have to pay a higher claim amount for repairs.
- Costly cars fitted with fancy accessories intuitively attract the attention of thieves or anti-social elements, which increases the probability of the vehicle getting stolen.
- Modifications to the car or other expensive parts installed in it increase the valuation of the vehicle compared to the showroom price and, hence, the scope of insurance coverage increases.
Insurance companies use the IDV to determine the present market value of your car during car insurance renewal.
Insured Declared Value (IDV)
The IDV in car insurance is the current assessed value of your car for insurance purposes. The key metrics employed by the insurer to arrive at it include depreciation, mileage run, claims made in the past, safe driving track record of the driver, etc. The lower the IDV, the lesser will be the insurance premium.
IDV is the tentative market worth of your car and denotes the maximum amount to be compensated by the insurer.
If your car gets damaged irreparably during an accident, the IDV decided when purchasing the car insurance policy will be reimbursed to you after the write-off. Hence, never settle for a lower IDV, even if this means paying a few extra hundreds for insurance premiums. That said, the insurer fixes a certain upper limit for fixing the IDV.
How Does Depreciation Impact the Value of Your Car?
With usage and age, your car loses the sheen and power it boasted itself of when rolling out of the showroom. Its value keeps lowering than the ex-showroom price owing to depreciation. A car aged less than six months will suffer a 5% depreciation, whereas a five-year-old vehicle will be subject to a 50% depreciation. Accordingly, the IDV will be adjusted, and the car insurance premium will be affected.
Zero Depreciation Add-on
You can negate the impact of age-related normal wear or tear-induced depreciation of the car’s components compared to the showroom price by buying zero depreciation car insurance add-on.
You have to pay an extra amount as a premium for this add-on. But the IDV will be higher, increasing your insurance compensation after accidental damages. This add-on is available for cars not older than five years.
Important Factors That Affect a Car’s Valuation and the Insurance Premium
Apart from the car’s age, other factors influence its valuation. These have been discussed below.
Car’s Engine Capacity
If the engine capacity of your car, measured in cubic capacity, is high, your vehicle will get more horsepower and torque for ease of acceleration. Fuel consumption would be more. The car’s size shall be bigger and expensive parts are fitted for delivering optimum power.
If the car suffers accidental damage, the repair cost would be higher. Hence, the premium will be more.
Model or Make of Car
If you purchase a top model of a particular car, its price will be higher. Further, if the car components are imported and assembled in India, the car’s cost shall be higher than indigenously manufactured variants.
Installation of an Anti-theft Device
Your car’s value can be high, but you may avail of a discount on car insurance premiums if anti-theft devices are installed. These include gear lock, theft alarm, car wheel clamp, GPS locator, brake lock, steering wheel lock, etc. This is because your car’s safety quotient increases with these devices, and the insurer rewards you for this.
Add-ons Selected
If your car is expensive, you may like to secure optimal insurance cover to protect yourself against all unforeseen risks. You will likely purchase add-ons like engine protection cover, lock, key loss cover, etc. These car insurance add-ons come for a price and increase the value of car insurance premiums, although the car’s valuation remains fixed.
What About Third-party Insurance Only?
If you go for third-party car insurance cover only, the value of the car will become immaterial. The premium for third-party coverage is fixed by the IRDAI and is independent of the IDV of the car. You will not be compensated for your own damage. If your car accidentally injures a third party or causes property damage, the insurer will reimburse the concerned person on your behalf.
Is the Geographical Location of the Car Related to its Valuation?
The service location where your car is insured doesn’t affect the car’s valuation. Still, you may sometimes have to pay higher car insurance premiums than in other areas. The insurer categorises your location as a high-risk area prone to flooding, riots, frequent road congestion due to heavy traffic, etc.
Conclusion
Accurate knowledge of a car’s valuation will help you pay the optimum car insurance premium or get the best deal while buying/ selling an old car. Some car insurance companies offer attractive discounts on insurance premiums. Compare the offerings of different companies before grabbing an exciting car insurance premium deal.
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Add ons for your Car Insurance
An expensive car comes fitted with costlier components. After an accident, the repair and replacement cost of such components would be higher. Hence, the insurer charges a high premium. Also, the risk associated with an expensive car is higher since car thieves are likelier to break into such a car than a cheaper variant.
The premium of a comprehensive or own damage insurance policy is linked to the car’s value. For third-party car insurance, the premium is set by the IRDAI, and the car’s value has no impact on the same.
Although the cost of installing such accessories is borne by you and doesn’t affect the car's market value, such accessories capture the attention of potential car thieves and make repair costs higher after an accident. Hence, you are required to pay more for the car insurance premium to cover the additional risk.
Yes, you can get a discount on premiums as your car becomes less prone to theft.
The IDV is an indicator of the car's current market value. It is arrived at by factoring in depreciation, and other aspects like mileage driven, claim history, etc.