Car Insurance

Factors That Affect Your Car Insurance Premium

By Admin
Apr 28, 2021

The moment we think of car insurance, usually, the first and foremost thought that strikes the mind is Premium. How much premium should I need to pay? Is my car insurance premium cost-effective? How can I reduce my premium to save money? These are a few queries that revolve around premium. 

Premium plays a pivotal role in car insurance. It differs across insurance companies and depends on multiple factors affecting the same. Thus, as a car owner, it is important for you to know what goes into calculating the car insurance premium.

In this article, we are going to discuss key factors that affect your car insurance premium.  

1. Type of Policy: The most important factor that influences the premium of your car insurance is the type of policy you select. Based on your specific requirements, you can choose between third-party, comprehensive, and pay-as-you-drive policies. Now depending on the policy type, you would get coverage hence a premium would be charged accordingly. 

For example- If you have selected Third Party Car Insurance Policy then you can have limited coverage for only third-party liabilities. Hence, your premium is also less. Whereas, in the case of a Comprehensive Car Insurance Policy, you will get wider coverage in terms of third-party liabilities as well as own damage. Hence, in this case, the premium would be high as compared to the third-party policy.   

2. Make, Model, and Variant of Car: Your vehicle’s exact specifications such as Make, Model, and Variant has a huge impact on your premium. Before deciding the premium amount, your insurance company pays attention to the exact specifications of your car. And, that’s how the premium differs for each policyholder. For example- Aakash Gupta who owns a Maruti Suzuki Swift would be paying a different premium from his brother Amit Gupta who owns a Hyundai Creta. 

Moreover, the Cubic Capacity (CC) of your car and fuel types such as petrol, diesel, and CNG also have a big impact on deciding the premium. Vehicles with bigger engine sizes command higher premiums than those with lower ones. Similarly, diesel engine cars will have a high premium as compared to petrol and CNG running cars. 

3. Car Registration Location: You must be wondering how location is responsible for affecting the premium of your car insurance, isn’t it? Well, if a car is registered in any Tier-I city such as Delhi, Mumbai, Pune, Hyderabad, Chennai, Kolkata, Ahmedabad, and Bangalore, the premium rates would be high. Because these metropolitan cities are densely populated and have congested roads and increased traffic. Hence, the chances of accidents are more as compared to Tier-II and Tier-III cities which are considered to be less accident-prone. And, that’s how premium rates vary based on the registered location of your car. 

4. IDV: Another major factor that deeply creates its impact on the premium of your car insurance is the IDV. Also known as Insured Declared Value of a car. IDV is the maximum coverage amount for your car that an insurance company would pay in case of theft or total loss. There are various factors that collectively contribute to the calculation of IDV. Factors like how old is your car, how much natural wear & tear it has experienced, how much damage the car has seen, etc form the present conditions of your car. 

Now based on these factors, the depreciation (reducing value) of a car increases which leads to lesser IDV(present market value). Hence, older cars whose IDV is less would also have a lesser premium. Whereas, new cars with high IDV mean higher coverage amount and so will have higher premiums.   

5. Add-ons: What do we understand by the word ‘add-on’? Well, it simply means you are adding them into your existing policy for its enhancement and making it complete. The main purpose of add-on covers is to provide extra coverage and benefits to a policyholder so that he can make the most of his policy. And, in order to enjoy that extra benefit, the policyholder has to shell out extra money from his pocket. 

Depending upon the type of add-on cover you choose with your policy, the final premium has been decided by your insurance company. A policyholder can choose from various add-on covers such as-Zero Depreciation, Passenger Cover, Return-to Invoice, Engine/Gearbox Protection, Consumable Cover, Tyre Protection, etc.   

6. Policy Tenure: While filling a query form online to buy/renew your car insurance, one important field which also requires your input is to select the policy tenure. For how many years do you want car insurance? This is really a critical aspect that is also taken into consideration while deciding your premium. A policyholder can either choose a single/1-year policy or he can select a multi-year policy (3 or 5 years). Based on his policy tenure, the premium amount is calculated by the insurance company. 

For example-An Individual opting for a 1-year policy would generally pay a higher premium as compared to a person who has opted for a multi-year policy. The reason being, insurance companies offer discounts on premiums for selecting multi-year policies.  Additionally, can save money on every year third-party premium hikes. 

7. Installation of Anti-Theft Devices: Protecting your car by installing some anti-theft devices also gives its share in the premium calculation. That’s Right! If a policyholder has installed the anti-theft devices in his car, certified by the Automotive Research Association of India(ARAI), lucrative premium discounts of up to 10%-15% are waiting for him. Yes, he can get discounts on his car insurance premium as the chances of the vehicle being stolen reduce. As a result, insurance companies expect fewer claims from a policyholder. Therefore, offer discounts on premiums to give a big relief to a policy owner. 

8. No-Claim Bonus: Your clean claim history is also helpful in affecting your premium in a better way. The insurance companies offer discounts on the vehicle’s own damage premium if a policyholder has not filed any claim during his policy tenure. Yes, a  maximum discount of up to 50% of the total NCB accumulated on own damage can be availed, if a policy owner has not raised any claim for 5 consecutive years. Thus, NCB allows you to enjoy lower premiums.   

9. Voluntary Deductible: A specific amount of money that a policyholder voluntarily opts to pay from his pocket at the time of claim is known as Voluntary deductible. Well, opting for a voluntary deductible is surely one of the best ways to save money on premiums. The higher the amount of voluntary deductible a policyholder chooses to pay, the lower the premium he would enjoy.  Hence, the less financial burden on his shoulder as far as paying his car insurance premium is concerned. Yes, a voluntary deductible is inversely proportional to your car insurance premium. The higher the voluntary deductible, the lesser the premium. 

Below is a table showing discount (savings) one can get while opting for a specific voluntary deductible

Voluntary DeductibleDiscount
INR 2,50020% on the Own Damage premium of the vehicle, subject to a maximum of INR 750
INR 5,00025% on the Own Damage premium of the vehicle, subject to a maximum of INR 1,500
INR 7,50030% on the Own Damage premium of the vehicle, subject to a maximum of INR 2,000
INR 15,00035% on the Own Damage premium of the vehicle, subject to a maximum of INR 2,500

Summary

To ensure that you buy an affordable car insurance premium with wider coverage, you should be aware of the factors mentioned above. IDV, Policy Type, Add-ons, MMV, NCB, etc determine the premium of your car insurance. Knowing these key factors would be really helpful to shift things in your favour in order to enjoy the best premium rates with adequate coverage. 

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