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A Wide Range of Factors Affect Car Insurance Premiums

By Juhi Walia
17 August 2022, 1:19 PM

Your car is undoubtedly something you take great pride in, having spent months selecting it after much thought, research, and financial planning. So why wouldn't you conduct the same research when it comes to protecting your car? 

A car insurance premium is the sum of money you fork out to get protection for your vehicle. Third-party car insurance and comprehensive car insurance are the two commonly known categories of automotive insurance policies. Since the premium amount is based on the coverage provided, each category has varying premium amounts. In addition to coverage, many other factors can affect how much auto insurance costs. 

You might be unaware of some factors that influence the cost of your car insurance.
Do not worry because this article will show you how to minimise the premiums you pay while boosting the advantages of your car insurance. A truly win-win situation.

Factors Affecting Car Insurance Premiums

Your likelihood of being in an accident is one of many criteria determining how much your auto insurance will cost. To choose the best option when buying or renewing your policy, you should be aware of various factors that affect your auto insurance rate. Let's now discuss a few less well-known factors that affect your car insurance premium.

Depending on the Sort of Car Insurance Coverage

There are mainly two categories of car insurance. They are comprehensive policies and third-party policies.

A comprehensive car insurance plan includes coverage for third-party liabilities and any potential damages to your vehicle. 

A third-party car insurance plan covers only the costs owed to a third party for damage to their vehicle, property, or any physical injury caused. 

Car Make, Model, and Variants

A car's "make" denotes that it comes from the same manufacturer, whereas a car's "model" denotes that it belongs to a separate car category. Different "variants" and "versions" of a "model" may exist.

Consider the Maruti Swift Dzire LXI (1298) and VXI (1298), for instance:

Maruti Swift is the make. Dzire is the model, and the variants are the VXI (1298 CC) and LXI (1298 CC). Each variant may have different premiums.

Vehicle Age

The comprehensive car insurance premium is based on your car's ex-showroom cost. The Insured Declared Value (IDV) of the car decreases as the years go by due to depreciation. Older car mobiles receive a lower IDV from insurers than newer vehicles do. As a result, the old car premium is smaller. In comparison, the IDV and premiums for a brand-new car are higher.

Car Registration RTO

The premium is also impacted by the car registration RTO. In India, different car insurance rates apply depending on where the vehicle was registered. Zone A and Zone B are different geographic areas.

Delhi, Mumbai, Kolkata, Chennai, Bangalore, Hyderabad, Pune, and Ahmedabad are all located in Zone A. The remaining cities of India are included under Zone B.

It should be noted that all vehicles registered in Zone A are subject to a somewhat higher premium than vehicles registered in Zone B. Zone A cities are prone to accidents and risks due to increased population density and a large number of vehicles on roads.  

Your Age, Profession, Claim History, and the Area Where You Drive:

Age: Few car insurance companies give customers a sizable discount above a certain age. For instance, if the policyholder is a seasoned driver and falls within the age range of 35 to 45 years, they may qualify for an additional discount on their personal damage premium.

Profession: You are qualified for a specific discount on the cost of your car insurance if you are a teacher, government worker, member of the armed forces, chartered accountant, or another category recognised by IRDAI. For example, a doctor or a CA can qualify for an additional discount.

Claim Background: If you haven't filed any claim during the duration of the insurance, you are eligible for an extra discount. Such savings are available as a No-Claim Bonus (NCB). Because the NCB is cumulative, the more claim-free years you have, the greater the discount you receive. Additionally, you won't be eligible for this discount if you filed a claim during the preceding policy's term.

The Area Where You Drive: You might have to pay a higher premium if you live or drive in an accident-prone area. Residents of metropolitan areas or places with significant traffic volumes pay a somewhat higher premium.

Car's Engine Cubic Capacity

The damage factor is computed based on the car's engine cubic capacity and registered RTO. When it comes to comprehensive coverage, this aspect is distinct from the third-party premium. The cost of third-party insurance is solely determined by the power of the car's engine. The premium increases with engine capacity.

Petrol, Diesel, and CNG Kit

The fuel type you use also impacts your car insurance rates. For gasoline, diesel, and CNG, the premiums are different. The third-party premium for CNG vehicles would be higher than diesel and petrol engine-type vehicles. 


You may drive with confidence and financial security if you have a solid car insurance plan. But before taking that leap, it would be beneficial for you to know the key parameters affecting your car insurance premium. It is also important for you to know that these plans also cover all liabilities resulting from injury, death, or property damage to third parties. In addition to offering protection against accidents, policies also provide coverage against riots, fires, thefts, explosions, and other acts of God. Make an informed choice by taking your time and shopping around.

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1. How do insurance providers set their rates?

Your age, claim history, vehicle type, policy coverage, add-ons opted are typical criteria insurance companies consider when determining your insurance prices. Insurance companies may also employ actuaries or statisticians to determine the appropriate quantity of insurance premiums to charge a specific client.

2. Is insurance more affordable after a car is paid off?

No, paying off your automobile doesn't cut your insurance costs, but it does provide you more freedom in terms of the kind and amount of coverage you have, which can result in insurance cost savings.

3. What paperwork is needed to file a claim for your car?

Documents like your driver's licence, a copy of your registration certificate, your insurance policy, claim settlement form, FIR(in case of theft or third-party accident) etc., are necessary for submitting a claim with your insurance provider.

4. Are insurance costs for older vehicles lower?

In particular, comprehensive collision coverage makes most older cars less expensive to insure. Future insurance benefits following an accident are reduced since cars depreciate over time. With antique or collector cars, this isn't always the case.

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