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Factors Affecting Car Insurance Policy

Written by Amit Jain
Updated On Oct 18, 20232 min read

Factors Affecting Car Insurance Policy

Any new or used automobile in India must be protected under a car insurance policy. Car insurance plans are well-known in India, particularly from a practical standpoint. Furthermore, automobile insurance protects one’s vehicle financially against theft or natural calamities. Apart from that, knowing that your automobile is financially protected gives one peace of mind.
Understanding how vehicle insurance companies decide costs can be perplexing sometimes for a layperson. Auto insurance firms utilise a variety of pricing elements to calculate risks, or the likelihood that one might submit a vehicle insurance claim. An individual’s auto insurance premiums will be reduced if their perceived risk is lower. To find out about the factors that affect car insurance policy, read on.

Factors Affecting Car Insurance Policy

What Are The Factors That Affect Car Insurance Policy?

When purchasing or renewing automobile insurance, the premium is a significant aspect to consider. It is undeniably necessary to choose an economical coverage, but at the same time it shouldn't leave one uninsured. If you are uninsured, then it is highly possible that you may catch yourself in the midst of a financial crisis if an unforeseen incident involving the insured car occurs.

Below are some factors that might one’s car insurance policy -

The Model Of The Car

Insuring a luxury car will cost more than insuring a hatchback car. This is due to the vehicle's basic design. As a result, the manufacturer, model, cubic volume of the engine, and other factors will all have a direct influence on your car insurance rate.

A Car’s Age

The age of the vehicle takes two significant aspects in consideration for automobile insurance, i.e., depreciation and insured declared value (IDV). These two aspects are interlinked with each other. Depreciation is the decline in the valuation of an item caused by natural wear and tear that occurs over time. And IDV is the vehicle's approximate current market valuation.A used automobile will typically have higher depreciation and less IDV. This indicates that it costs less to insure an old car compared to insure a new one.

Geographical Location

A car insurance policy in a metropolis will cost more than one in a tier 3 city. This is due to the perception that the automobile is more prone to harm when placed in an urban setting. In a metropolis like Mumbai, for example, rising traffic, congested roads, and so on are variables that commonly cause accidents.

Third-Party Cover

In India, a basic third-party insurance is required by law. It provides protection against third-party liability. A comprehensive automobile insurance policy, on the other hand, covers both own damage and third-party liability. One may also expand the coverage with the aid of Add-ons. A Third-party Liability policy is less expensive in comparison to a Comprehensive vehicle insurance policy since it provides less coverage. In turn, the insufficient coverage provided leaves the policyholder uninsured.


Add-ons provide additional security and generally come at a cost. This also applies to insurance. Including add-ons such as Zero Depreciation, Passenger Cover, and so forth will raise one’s premium. As a result, it is recommended for an individual to only purchase Add-ons that they believe are really required.

Role Of Seller

When a person buys their vehicle insurance from a broker, the broker is required to charge a commission for delivering a service. But if you happen to buy it from a vehicle dealer, the dealer is likely to offer a set policy with coverage that you might not want. And you may find yourself paying more for a cover that isn't right for you. As a result, it is preferable to get auto insurance directly from the insurer.


Before purchasing or renewing automobile insurance, it is quite important to understand the cost of the coverage that's being provided. An individual only needs to use the vehicle insurance premium calculator for this simple task. Many insurers' websites include an auto insurance calculator for easy understanding.

Also read: Types of car insurance in India

Why do you need car insurance?


This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.
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Written by Amit Jain
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 Amit is an upcoming name in the motor industry be it new cars/ bikes or used ones. Amit in his last stint worked as a consultant for major Fortune 500 companies across the globe. In his free time, Amit likes to play cricket.

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