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10 Factors Which Determine Car Insurance Premium?

Team AckoJan 17, 2024

Car insurance is compulsory. That doesn’t mean you have to empty your wallet every time you insure your vehicle! A penny saved is a penny earned, right? If you know which factors affect car insurance, maybe you can swing things in your favour. This way, you can purchase an inexpensive car insurance policy without compromising on the coverage.

Remember, you cannot change facts. You have to be honest while sharing the details with the insurance company. At the same time, you have to be smart if you want to steal a deal. Read ahead to know about the factors that affect car insurance premium rates.

Contents

10 Points That Have an Impact on Car Insurance Premium:
Things that determine the cost of car insurance
How to Calculate Car Insurance?
Frequently Asked Questions:

Car Insurance Premium:

The car insurance premium is the amount you pay to the insurance company to purchase or renew your car’s insurance policy. You pay the premium and receive a policy document. That is the nature of the transaction in the car insurance industry.

The policy document acts like a receipt and a promise, which is bound by the Policy Wordings. The Policy Wordings document is like a contract, which explains the terms and conditions of the policy. Paying premium does not guarantee that the insurance company will pay the claim amount in case of an accident. They will do so when the terms and conditions mentioned in the Policy Wordings are met.

10 Points That Have an Impact on Car Insurance Premium:

The car insurance premium is an important factor when you set out buy or renew car insurance. Undoubtedly, it is important to buy an affordable policy but at the same time, it should not leave you underinsured. If you are underinsured, you will find yourself in the middle of a financial crisis at the time of an unfortunate event involving the insured vehicle.

To ensure that you buy an affordable policy with adequate coverage, you should be aware of the following factors which determine your car insurance premium. Knowing them will help you to make the correct call when it comes to buying or renewing your policy.

1) Make, Model, Variant:

The premium for insuring a luxurious sedan is going to be high as compared to a hatchback. This is because of the vehicle’s basic composition. That’s why your vehicle’s manufacturer, its type, cubic capacity of the engine, etc. will have a direct impact on the car insurance premium.

2) Age:

Age of the vehicle takes into account two important concepts related to car insurance: Depreciation and Insured Declared Value (IDV). These two concepts are interrelated. Depreciation is the reduction in the value of an asset due to natural wear and tear over a period of time. And IDV can be understood as the approximate current market value of the vehicle.

Usually, an old car will have more depreciation and less IDV. This means it will cost less to insure an old vehicle and more to insure a new vehicle.

3) Location:

Insuring a car in a metro is going to cost more than insuring one in a tier 3 city. This is because the car is perceived to be prone to damages in an urban setting. For example, increasing traffic, congested roads, etc. are the factors that cause accidents frequently in a city like Mumbai.

4) Cover:

A basic Third-party policy is mandatory by law in India. It offers cover against third-party liabilities. On the other hand, a comprehensive car insurance policy covers Own Damage along with third-party liabilities. Plus, you can enhance the coverage with the help of Add-ons.

As the coverage offered by a Third-party Liability policy is less, the cost is less as compared to a Comprehensive car insurance policy. However, the coverage offered is not enough which leaves the policyholder underinsured. If you want Comprehensive coverage, it is going to cost more than the price of a basic Third-party policy! Simply put, premium increases along with the coverage offered.

5) Add-ons:

Add-ons offer extra security. And extra things usually come at a price. This applies to insurance as well. Including Add-ons such as Zero Depreciation, Passenger Cover, etc. will increase your premium amount. Thus, it is suggested to go for only those Add-ons that you feel are absolutely necessary.

Also, read: How to Calculate Car Insurance Premium?

6) No Claim Bonus (NCB):

Insurance companies offer a discount on the premium (on car insurance renewal) if you haven’t raised a claim during the previous policy period. Do not be in a rush to raise a claim. Look at the NCB component (if applicable) before raising a claim and then decide if it makes sense to raise a claim or not.

7) Anti-theft Device:

Protecting your vehicle with an anti-theft device that is certified by the Automotive Research Association of India (ARAI) might fetch you a discount on car insurance premium. Do not miss out on this one!

8) Deductibles:

You can opt for a Voluntary Deductible to reduce your insurance premium. This effectively means that you will contribute a predetermined amount to the claim amount. As a result, the insurance company has to pay less while settling a claim and therefore charge less premium.

9) Seller:

If you purchase car insurance from an agent, the agent is bound to charge some commission for providing a service. If you purchase it from a car dealer, it is likely that the dealer will offer a fixed policy providing a cover that you may not want. This way, you might spend extra for a cover not suited for you. Thus, it is best to purchase car insurance directly from the insurer.

10) Digital Insurance:

Digital-first insurers offer Comprehensive car insurance policies with appealing features at a low price. As they spend less on operational cost, they can offer policies at a lower rate compared to the market. Make sure to check car insurance quotes on digital insurers’ websites before purchasing a policy or while going for car insurance renewal.

Also, read: Incredibly Low Priced Car Insurance

Things that determine the cost of car insurance

1. Fuel Type

There can be a difference in the price of a car insurance policy depending upon the type of fuel the car is running on. Cars using diesel and CNG fuel types can cost more compared to those running on petrol for the same model.

There is a difference in the cost of insurance for the same model of cars but a different fuel type because the Insured Declared Value for those cars is different. In case of CNG fuel type, the cost of insuring the CNG kit itself will increase the overall cost of the policy.

2. Value of The Car

Insured Declared Value (IDV) of a car is a primary component for calculating the car insurance premium. IDV value is nothing but the approximate current market value of a car. Thus, if a car costs more, the cost of getting it insured will obviously be more.

3. Memberships

Certain associations enable their members to enjoy a small discount on their car insurance premiums. One such instance is being a member of the Automobile Association of India. This association is divided depending on the geographical location. For example, Western India Automobile Association, Automobile Association of Southern India, etc.

4. Driving History

Driving history will not have an impact if you are buying car insurance for the first time. The cost of car insurance will increase for those who have a raised a car insurance claim against their policy. However, if no claims are raised in the past, the policyholder will become eligible for a discount called as No Claim Bonus (NCB). This discount is cumulative in nature and increases with each consecutive claim-free year. NCB can reach and stay up to a 50% discount on car insurance premium and drops to zero when a claim is raised.

How to Calculate Car Insurance?

It is fairly easy to understand the price of your car insurance policy before buying or renewing car insurance. All you have to do is use the car insurance premium calculator. Many insurers have a car insurance calculator on their website.

Car insurance calculator is nothing but a web form which you need to fill with details related to you and your car. The calculation of your car insurance premium will be done automatically and an estimated price will be displayed. Refer to this estimate and decide if you want to tweak a few factors to increase or decrease the price.

Frequently Asked Questions:

How does one use a car insurance calculator?

The best way to figure out the cost of a car insurance policy is by using a car insurance premium calculator. The factors mentioned above are used by the car insurance premium calculator. You simply have to mention the details asked and you will come to know the car insurance quote.

What should I keep in mind while comparing car insurance online?

A tried and tested way of finding an ideal car insurance policy is to compare car insurance online. Do spend some time comparing the features and inclusions and exclusions of the covers, prices, services offered and the insurer’s credibility while purchasing car insurance for the first time or at the time of renewal.

Is there a way to get discounts on car insurance premium?

For getting discounts on the car insurance premium, you can become a member of Automobile Associations of India, install anti-theft devices and last but not the least, drive safe for higher No Claim Bonus. You can also search for quotes from online insurance companies as they tend to offer policies at affordable costs without reducing the number of features or the quality of claim settlement services.

Do the factors mentioned above apply for a second-hand car?

Yes, the factors apply to a second-hand car as well. The points mentioned above are an overview but will apply to all types of cars except certified vintage cars. You will come to know the exact premium to be paid for your car once you go through the purchase journey on the online insurance company’s website. That amount will be inclusive of the tax charged.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet; and is subject to changes. Please go through the applicable policy wordings for updated ACKO-centric content and before making any insurance-related decisions.

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