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Reasons Why You’re Paying a Higher Car Insurance Premium

By Vikas Chandra Das
04 August 2022, 2:45 PM

There are many reasons why you pay more for the insurance cover on your car every year. But the main reason for your increased annual premium is that the Insurance Regulatory & Development Authority of India (IRDAI) fixes the third-party insurance premium rates yearly. So, all those having annual policies will need to bear the extra costs every year.

The IRDAI fixes these rates for the next financial year based on the cubic capacity of the four-wheeler and other factors.

Typically, it results in an overall increase in third-party car insurance costs. So, even if you have a comprehensive car insurance policy, the premium will rise due to the aforesaid reason. A comprehensive policy includes a third-party premium component besides the own damage premium component. So, the hike in the third-party premium by the IRDAI will increase your overall premium outgo. But the premium could rise due to other reasons too. Let's examine other factors for car insurance premium hikes. 

Other Factors That Can Increase Your Car Insurance Premium

In addition to IRDAI’s annual increase, other significant reasons keep your car insurance premiums high. Although there are many reasons, here are the five major reasons that can increase your premium. Knowing these reasons will enable you to take adequate measures to reduce this annual amount.

#1 Driving Record

A car insurance provider will look upon you favourably if you don’t file a claim or your claim record is low. On the other hand, if you drive rashly and have a history of traffic violations, your insurer will consider you a high-risk customer, resulting in higher premiums on renewal.

#2 Claim History

If your car gets damaged, assess the damage carefully. Is it worth filing a claim? When the count of such claims becomes frequent, the insurer might contemplate hiking your premium on renewal. There is such a thing as a car insurance no-claim bonus. Most insurance providers will reward you with this bonus if you don’t file a claim for a whole year.

In other words, your insurer rewards you for driving carefully and avoiding damage. Even if your car suffers minor damage, you can get the repairs done yourself instead of running to your car insurance company, thereby avoiding a claim. With some care, you can avoid making claims to avail of your car insurance with a no-claim bonus. It helps keep your premiums lower than they could be.

#3 Type of Car

Your 4-wheeler car insurance policy is also underwritten based on your car type. If you drive a luxury suburban utility vehicle (SUV) that costs tens of lakhs of rupees, the cost of repairing it will be phenomenal. Your car insurance cost will automatically shoot up.

On the other hand, if you drive an economical car like an indigenous sedan or hatchback, the cost of paying for damages will be less. The premiums, in this case, will be considerably less than if you were to drive a luxury car.

#4 Choice of Add-ons

When applying for a new car insurance plan, your insurance agent will suggest various add-ons to your insurance policy. Add-ons are extra benefits you get by paying an amount in addition to your basic car insurance premium. They are optional – it is not compulsory to have them. But if you choose an add-on or apply for other add-ons on renewal, the premium hike is obvious.

Some examples of add-ons in a car insurance policy are:

You need to exercise some discretion while opting for these additional covers. You may find some of them helpful, like roadside assistance or zero depreciation cover. 

So, when buying car insurance, you must be careful when selecting add-ons. You may end up paying for additional covers you don’t need. Keeping add-ons to a minimum can reduce your car insurance cost considerably.

Read more - 7 Surprising Ways to Reduce Your Car Insurance Premium Effectively


If you notice that your car insurance price seems to increase every year, do not despair. There is much you can do to keep this price increase under control. Start by checking if the increase is due to the five reasons we have cited here. You can reduce your premiums or keep the increase under control.

Read more - Why Car Insurance Premium Increases Every Year?


1. Can my car insurance premium be affected by my driving habits?

Your driving habits can directly affect how much you pay for your car insurance policy. Car insurers take a keen interest in the past driving records of drivers. Most of the information is available online, and your car insurance company will delve into your past driving records.

Suppose there are multiple traffic violations and accidents due to rash driving on your name. In that case, your insurance company will consider you a high-risk customer and charge you more for your car insurance policy.

2. How can I reduce my car insurance premium?

The five primary ways you can reduce your car insurance premium are to have a clean driving record, avoid frequent claims, use a cheaper and older car, and avoid unnecessary add-ons.

If you are confident about avoiding claims, you can reduce your premiums considerably by raising your voluntary deductibles. Steering clear of modifications to your car can also reduce your car insurance cost.

3. Can my car insurance premiums be affected by where I live?

The geographical location of the driver is a matter of interest for car insurance providers. If you live in a big city, the risk of damage to your car is far higher than if you were in a small town.

For example, if you live in Delhi, your car insurance policy renewal would cost more than someone in Raipur or Bhubaneswar. Therefore, if you relocate to a smaller city or a small town, it’s always a good idea to inform your car insurance company.

4. Which regulations apply to traffic signals?

To maintain a steady and smooth flow of traffic, traffic light regulations are adhered to. Therefore, when at a traffic signal, you should be aware of the following fundamental traffic light regulations:

  • A red light at a traffic signal indicates that you must stop or bring your car to a halt.
  • You must reduce your speed while approaching a yellow traffic signal.
  • You may continue driving if the light is green at the intersection.

5. Does car insurance in India cover dents and scratches?

You may file an insurance claim in India for car dents and scratches. However, it is advised against doing so since minor dents & scratches can result in high future car insurance premiums.

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