Factors Affecting Car Insurance Premiums| Finserv MARKETS

Factors Affecting Car Insurance Premiums

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27 Sept 2021

Buying a new car is a significant investment for most people. Hence, it’s natural that car owners opt for a comprehensive car insurance plan to protect their vehicles. However, many car owners do not understand what factors affect car insurance premiums. An understanding of how insurance premiums work will help you pick a good insurance plan. In this article, we’ll take a look at the various factors that affect car insurance premiums and some tips on how you can reduce your car insurance premiums.

What Affects Car Insurance Premiums Rates?

Here is a list of factors that influence car insurance premium rates:


  • Model of Your Car:

The brand and model of your car helps insurance companies to determine the Insured Declared Value (IDV) of your car. If you have an exotic or luxury car like a BMW or Mercedes, the IDV of your car will be higher and so will the insurance premiums. However, if you have an economic car with a low IDV, your insurance premiums will be lower.


  • Type of Engine:

The type of fuel that your car engine uses also determines the insurance premium rates. Generally, cars running on diesel have the highest premiums, followed by CNG cars. Petrol cars have the lowest premiums.


  • Age of Your Car:

As your car gets older, the Insured Declared Value goes down each year, due to the depreciation of your car. As the IDV of the car goes down, the insurance premiums also go down.


  • Location:

The location where you have bought and intend to drive the car also affects the insurance premiums. If you have purchased your car to be used in a densely populated city, the chance of getting into an accident is much higher compared to driving in a small town with a lower number of vehicles. Thus, insurance premiums are higher for big cities, compared to small towns and rural areas.


  • Driving History of Owner:

The age and driving history of the car owner also affect insurance premiums. Individuals lower than 25 generally have higher premiums as they are considered to be at higher risk of accidents. However, older people with a clean driving history have lower insurance premiums. Car owners with a history of getting into accidents need to pay a higher amount.


  • Type of Insurance Coverage:

Car owners have the option to choose between getting a third-party insurance cover or comprehensive car insurance. Comprehensive car insurance has higher premiums as it provides advanced coverage like an accidental cover, medical cover, own damage cover and more. If car owners choose to buy additional riders, the cost of insurance premiums may go up even more.


  • Modifications:

If you are someone who enjoys modifying your car and adding extra features, you will have to be prepared to shell out extra money for insurance premiums. As the cost of repairing modified cars can be high, insurance companies charge higher premiums.

How to Reduce Your Car Insurance Premiums?

In the above section, we looked at what factors affect car insurance rates. Here are some tips and recommendations you can follow to reduce your insurance premiums:


  • Look at all Available Plans:

When buying car insurance, you should check out all the insurance options offered by different companies and settle on a plan that fits your budget, while providing all the coverage you need.


  • No Claim Bonus:

Avoid making small insurance claims for scratches or minor repairs. If you do not make any claims during a policy term, you will be eligible for a No Claim Bonus (NCB). This will reduce your premiums when you renew your insurance plan.


  • Add-Ons/Rider:

While buying comprehensive car insurance, it may be tempting to buy all the add-on covers for better protection. However, analyse the additional covers you need and leave aside the ones that are not going to be useful, to save costs on insurance premiums.


  • Safe Driving:

Make sure you drive safely and try your best to not get involved in any accidents and collisions. Car owners with a clean driving history are awarded much lower premiums than car owners with a history of accidents or traffic offences.


  • Car Security:

If you have secured your car with an anti-theft device, your insurance premiums can go down as the risk of your car getting stolen is reduced significantly. However, when you buy an anti-theft device for your car, make sure that it has been approved by the Automotive Research Association of India (ARAI).


  • Buying Insurance Online:

Buying a car insurance plan online is cheaper than buying a plan in person as there are no commission charges involved. However, some people are hesitant to buy insurance online. The truth is that insurance plans bought online are just as valid as insurance plans bought in person.

Final Takeaway

Car Insurance is an excellent tool to financially protect yourself and the car against unexpected accidents, theft, third-party damages and much more. While the government has made it mandatory for all vehicle owners to get third-party insurance, you should always opt for comprehensive car insurance for better overall protection. You can take a look at the various car insurance plans available at Finserv MARKETS and choose one that suits your needs.  

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How is car insurance premium calculated?

Car insurance premiums are decided by insurance companies based on various factors such as car brand and model, engine type, driving history of the owner, IDV of the car, geographical locations and much more.  

Does car insurance increase with the age of the car?

No, it doesn’t. On the contrary, as the age of your car increases, the IDV goes down due to depreciation. This in turn reduces your insurance premiums.

Which car insurance policy is best for my car?

It is advisable to go for a comprehensive car insurance policy that provides all the kinds of cover you may require. You can also get additional riders when choosing a comprehensive insurance plan for increased coverage.  

What happens if I stop paying car insurance?

If you stop paying your car insurance, your policy will lapse. If your third-party insurance policy lapses, you will no longer be able to legally drive your car.

Is car insurance a monthly payment?

You can choose to pay your car insurance premiums in monthly, quarterly, semi-yearly or yearly installments. You can decide the terms of payment with the insurance company at the time of buying the car insurance. 

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