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How does Car Value affect Insurance Premiums?

Written by Sharad Bajaj
Updated On Oct 14, 20232 min read

How is your car valued and how does this affect your insurance premium? Read this article to know everything on this matter.

When buying or selling a second-hand car there are a number of things that we worry about. However, what we worry the most about is getting the right price. Finding out the value of the car upon resale can often be confusing and intimidating. Moreover, the valuation of a used car also affects the insurance premium you have to pay for it in a number of ways. In this article, we will tell you everything you need to know about it.

What is Car Valuation?

The value of a car depreciates from the moment of its purchase. When buying or selling a used car it often becomes difficult to determine the value of the vehicle.

Factors Which Affect Car Valuation

The car valuation takes into account several factors to come to decisive value for the car taking into account the depreciation rate and other determinants. Here are a few of the main factors that determine the value of the car and why:

1. Depreciation Rate: As mentioned before the value of your car drops from the moment of your purchase. The depreciation value can help you project the value of your car down the line and/ or the IDV it will receive in the moment or the future. Some cars do better than others in the long run, hence when selling second-hand cars, certain models fare better in terms of valuation than others.

2. Supply and Demand Rate: When a car is available for sale in large numbers in the market for affordable prices, people are less likely to opt for a second-hand model of the same.

3. Car’s Condition: Car Valuation guidelines categorise the cars for sale second hand depending on the condition they are in before sale. Hence, cars in better condition fetch better prices.

4. Condition of Economy: Like other aspects, car sales fare better when the economy as a whole is doing well. Even if you manage to sell your car when markets are down, they will fetch good prices only when the economy flourishes.

5. Popularity of Car Model: If your car was or is a hot selling model it is likely to fetch a better price than those that did not do as well on the market as they have greater popularity.

6. Brand: The brand of the car makes a big difference when buying second hand. Prestigious and reliable brands fetch higher prices even during resale.

How Does Car Valuation Affect Insurance Premium?

One of the most significant factors for deciding car insurance premium is the Insured Declared Value or IDV. This is the maximum limit for compensation that your insurance company is willing to provide the policyholder. The IDV is reliant on the depreciation rate that is decided by the age of the car. As the car ages the depreciation rate increases. In other words, the car becomes less valuable with time and hence the compensation limit in case of damages also goes down. With used cars, they are expected to be older and hence will have lower IDVs. This means you will be paying less premium but also receiving low amounts as claimed especially after the 10-year mark. Click here to calculate your Car Insurance Premium.


In an overview, car valuation is done to decipher the value of a car in the moment or the future. With this value in mind, you can decide whether a new or old car is worth the purchase. Moreover, age is a significant deciding factor for car value and its insurance premium. With the depreciation rate, the IDV of your car increases every year and the limit for claims becomes lower. This may lower your premium but also offers less protection. In this case, it is worth looking at the Zero Depreciation Cover to stop your premium and IDV from becoming lower every passing year.

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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.


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 Sharad Bajaj
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 Sharad is an insurance industry veteran who has managed motor insurance products for over a decade. He helped set up and scale the motor insurance vertical for a leading insurance company in his previous stint. In his spare time, Sharad likes to read and be in tune with nature.

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