What affects car insurance premiumAlong with the increase in the number of cars in India, the cost of car insurance has also gone up in the last few years. Getting a good policy for a low premium is not always easy. There are many factors that can affect the premium for your car insurance policy. Here are some of them.

The car model

Car insurance premium is usually based on the ‘Insured Declared Value’ (IDV). What is this? IDV is the present market value of your car. The highest possible sum assured for the policy will be the IDV. This sum assured will be paid to you if there is a total loss of your car or when your car is stolen.

The insurance premium that you have to pay will be directly proportional to the IDV. So, the older the vehicle, lower the premium. The IRDA (Insurance Regulatory and Development Authority) has stated that the maximum IDV for any vehicle will have to be 95% of its previous showroom price. So, within six months of purchasing your car, the value of your car will depreciate by 5%. The table below provides the depreciation for your car’s value.

Car’s age % by which car’s value depreciates
Up to 6 months 5%
Up to 1 year 15%
Between 1 year and 2 years 20%
Between 2 years and 3 years 30%
Between 3 years and 4 years 40%
Between 4 years and 5 years 50%

For calculating your car’s IDV and the premium based on that, the insurance company will require details such as your car’s year of manufacture, the city where it was registered, engine capacity and the make of your car. The premium is usually higher if your vehicle will require imported spare parts.

It is best not to choose a low IDV just because you want to pay a low premium. This would result in inadequate sum assured for your car.

Personal or commercial

If you are going to use your car for personal purpose, the car insurance premium is usually lower when compared to cover for commercial vehicles. Since commercial vehicles are used as a source of income, the premium is higher.

Insurance zones

The place or area where your car was registered will also affect the premium payable for your car insurance policy. Usually, vehicles registered in urban areas such as metro cities will have a higher premium.

How to get discounts

One of the easiest ways to get a discount on your car insurance premium is to install anti-theft devices. Insurance companies give a discount of 5% if the car has anti-theft devices or safety features installed. Insurance companies also provide discounts if you have installed safety devices that are certified by the Automobile Research Association of India (ARAI).

Another way you can get discounts is by becoming a member of Automobile Association of India and Western India Automobile Association. By providing your membership details, you can get discounts on the car insurance premium.

The easiest way to get a discount is not to make claims for your policy. This applies to small claims such as for a scratch or a dent. Every claim free year will mean higher discounts the next year. This discount is known as No Claim Bonus (NCB). You can transfer the NCB even if you want to get an insurance policy from another insurance company. Don’t forget this when it is time to renew your policy.

Many online car insurance providers do offer comprehensive cover at a lower premium. However, the features offered will differ from one insurance company to another. It is important to compare both features and cost when buying or renewing the policy.

Staff Writer

This article is written by RupeeIQ editorial staff.