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Factors Affecting the Premium of Car Insurance

Published On Sep 11, 2021 11:00 AM By InsuranceDekho

Understand the top factors that can impact the premium of your car insurance. It can help you understand the premium cost of your policy.

To enjoy car insurance, one needs to pay a premium amount at regular intervals. The premium is paid to buy or renew your car’s insurance plan after which policyholders get the policy document that serves as a receipt and promises to deliver the services as per the policy’s terms and conditions. However, the payment of premium doesn’t guarantee that insurer will pay the amount for all the claims raised. The claim is approved only when required conditions are met.

The premium is the most important factor to avail the car insurance, but everybody wants to get a policy at an affordable price. To get a car insurance plan with adequate coverage and an economical rate, you must be aware of the factors that determine the premium of car insurance. 

Factors Affecting the Premium of Car Insurance

Factors Determining The Car Insurance Premium

Here are some factors that affect the premium of your car insurance and know which can help you make a correct call while buying or renewing your policy:

1. Make, Model and Variant

The car insurance premium to insure a luxurious SUV will be higher in comparison to a hatchback. It is due to the car’s basic composition as with the specifications the cost of the vehicle increases and decreases, which increases the burden on the insurance company. Hence, your car’s manufacturer, variant, etc. will impact the premium of your car insurance directly.

2. Age of the Car

The age of the car brings in the concept of depreciation on the IDV of the car. Depreciation is the reduction in the asset value due to wear and tear over time, while the IDV refers to the current market value of the car. With time the depreciation will increase making an old car have lesser IDV. In simple terms, it will cost lesser to secure your old car and more to insure a new car.

3. Location of the Car

The cost of purchasing an insurance policy to insure your car in a metro city will cost higher than buy a plan in tier 2 or 3 cities. The reason behind it is that cars are perceived to be more prone to losses or damages in an urban city due to several reasons such as traffic, congestion, crime and so on.

You may also like to read:  Benefits of Renewing Your HDFC ERGO Car Insurance Policy 

4. Policy Cover

The cost of a car insurance plan is based on the type of policy owned by you. If you only have a third-party policy that covers only third-party liabilities, then your premium will be minimal. On the other hand, if you have purchased a comprehensive car insurance plan that gives coverage for third-party liabilities as well as your own damage expenses, then you will have to pay for a higher premium amount to avail of the extensive coverage.

5. Add-on Covers

Add-on covers are additional coverage that provides extra protection to your car. You can opt for add-ons by paying a little more premium to add some extra coverage to your car insurance policy. The add-on covers include zero depreciation cover, return to invoice cover, passenger cover, and so on. Since you will have to pay an additional cost to avail of such covers, it means the more add-ons you will choose, the more will be your premium amount. Thus, you should opt for add-ons that you actually require.

6. No Claim Bonus (NCB)

Insurance providers give a reward in terms of a discount known as No Claim Bonus to their customers for not making any claim request in a policy year. With every claim-free year, the bonus increases with which you can get more discount on the premium of your car insurance during renewal. However, you should check the NCB component of the policy while purchasing a plan and during renewal to get the real picture of your premium.

7. Anti-Theft Device

To protect your car with an anti-theft device which is authorised by the Automotive Research Association of India (ARAI) can lower the chances of car theft and make your car a bit more secured. Since it reduces the possibility of your bike getting stolen, it ultimately lowers the burden on your insurance company as well to compensate for the loss. Due to this, it might fetch you a discount on the premium of your car insurance plan. 


If some factors can increase the premium of your car insurance, at the same time, utilising them accordingly can lower your car insurance premium as well. We have described some factors that can affect the premium of your car insurance and doing research about these can help you finalize a car insurance plan as per your budget and requirements.

Also Read:  SBI General Cashless Car Insurance Process Explained 

Disclaimer: 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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