Factors Affecting Car Insurance Premiums: All You Need to Know

In India, car insurance is not only a legal requirement but also a financial safety net. It protects you from unexpected expenses due to accidents, theft, or natural calamities. However, many drivers, especially first-time or young drivers, may often find themselves puzzled by the varying costs of car insurance premiums. 

Why does one person pay more than another for seemingly similar coverage? Read on to know the key factors affecting car insurance premiums in India and get some time-tested, practical tips to manage these costs while ensuring adequate coverage.

Car insurance premiums vary based on the type of insurance policy, the IDV, the car’s age, and lot’s more. Here are 11 factors to know. 

There are two main types of car insurance policies in India:

• Third-Party Insurance: Mandatory by law, this type covers damages to third-party property or injuries caused, but it doesn’t cover your own vehicle or personal damage.

• Comprehensive Insurance: This covers both third-party liabilities and own-damage (OD), including theft, fire, and natural disasters.

Understandably, comprehensive policies have higher premiums than third-party policies, as they offer a broader scope of coverage.

The IDV is the current market value of your car and represents the maximum amount the insurer will pay in case of total loss or theft of the vehicle. A higher IDV means a higher premium, but it also ensures better compensation. 

The make, model, engine capacity, and fuel type of your car significantly affect the premium. Check out the details below:

• Luxury or high-end cars attract higher premiums due to expensive parts and repair costs

• SUVs and diesel vehicles generally have higher premiums than hatchbacks or petrol cars

• Electric vehicles (EVs) may qualify for discounts or subsidies under government schemes

As a car ages, its IDV decreases, which typically lowers the premium. However, older cars may also be more prone to breakdowns, which can slightly offset the savings.

Where you live and register your vehicle also matters when calculating your car insurance rates. Check out how these factors influence the premium cost: 

• Urban areas (like Hyderabad or Mumbai) have higher accident and theft rates, leading to higher premiums

• Rural or semi-urban areas usually attract lower premiums due to reduced risk

When it comes to car insurance, not all drivers are treated the same. Insurance companies assess risk, and one of the biggest indicators of future risk is your past behaviour on the road. Check how your previous records impact premium costs today:

• If you haven’t made any claims in the previous policy year, you get a discount on your premium with No-claim Bonus (NCB)

• Frequent claims or a history of traffic violations can increase your premium

Insurance companies consider young drivers (typically under 25) high-risk due to inexperience, which can lead to higher premiums. Older, experienced drivers with clean records usually enjoy lower rates.

While add-ons enhance the scope of coverage available with your policy, they also increase the premium charges. Common add-ons include:

• Zero Depreciation Cover

• Engine Protection

• Roadside Assistance

• Return to Invoice Cover

A deductible is the amount you agree to pay out of pocket before the insurer pays the rest. Opting for a higher voluntary deductible lowers your premium but increases your financial responsibility during claims.

Installing IRDAI-approved anti-theft devices or having factory-fitted safety features (like ABS and airbags) can fetch you discounts on premiums.

Cars used for daily commuting or commercial purposes face higher risks and thus higher premiums. Limited usage or weekend-only driving can reduce your premium.

Here are some proven strategies to make your car insurance costs in India more affordable:

• Compare Policies Online: Use aggregators or insurer websites to compare premiums, coverage, and add-ons

• Maintain a Clean Driving Record: Avoid traffic violations and accidents to preserve your NCB and avoid premium hikes

• Choose the Right IDV: Don’t overstate or understate your car’s value; use the insurer’s calculator or consult an expert

• Opt for Essential Add-ons Only: Evaluate your needs and avoid unnecessary add-ons that inflate your premium

• Install Safety Devices: Get certified anti-theft devices installed to qualify for discounts

• Renew on Time: Late renewals can lead to policy lapses and loss of your No-claim Bonus

• Don’t Undervalue: Undervaluing your car to reduce premiums—it could lead to inadequate compensation during claims

• Don’t Over-insure: Choose add-ons based on your car’s age, usage, and location and don’t over-insure

• Avoid Small Claims: Drive safely and avoid small claims to preserve your NCB

Understanding the factors that influence car insurance premiums empowers you to make informed decisions. Whether you're a new driver or renewing your policy, evaluating your vehicle type, driving habits, and coverage needs can help you strike the right balance between affordability and protection. 

1. What are the main factors affecting car insurance premiums?

The key factors include the car’s IDV, make and model, age, location, driver’s age and history, type of coverage, and selected add-ons.

2. Can I lower my car insurance premium?

Yes, by maintaining a clean driving record, opting for higher deductibles, installing anti-theft devices, and avoiding unnecessary add-ons, you can reduce your premium.

3. Does the car's age impact the premium?

Absolutely. Older cars typically have lower premiums due to their reduced IDV, but they may also be associated with higher maintenance-related risks.

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