Factors Affecting Motor Insurance Premiums in India

Motor insurance acts as protection against your vehicle under unexpected circumstances. Taking care of your vehicle can get tedious and often the repairs are expensive and impact your financial planning. Instead, if you have insurance coverage for your vehicle, you are relieved that your vehicle is protected against any unexpected circumstances.

When you decide to buy motor insurance, you are required to pay a premium for the coverage of your vehicle. Ensure the IDV is set right so that you do not have to bear any expected expenses for the repairs of your vehicle. There are several policies available from which you can choose based on your needs.

Factors that Determine the Premium of Your Motor Insurance

If you are in doubt about the premium amount, knowing the factors that determine your premium amount will provide you with clarity.

Types of Motor Insurance

The premium of your vehicle insurance depends upon the type of motor insurance you choose. Having third-party motor insurance is mandatory by law. However, buying comprehensive insurance is optional.

If you want to protect your car and not worry about the expenses it incurs, you must buy a comprehensive car insurance plan. In comparison to a comprehensive insurance plan, the premium of third-party insurance is relatively lower.

Purpose of the Vehicle

When you buy vehicle insurance, a key factor that determines the premium is the purpose of your vehicle. For example, if you have a bike that you use for your personal needs, you will simply require a personal bike insurance plan. However, if you are buying a vehicle for commercial purposes, you will have to buy a separate commercial vehicle policy.

The reason why there are these two types of insurance is that usually commercial vehicles are much more exposed to risk than personal vehicles. Also, if you have a commercial vehicle, the premium is likely to be higher than that of personal insurance plans.

Age of the Vehicle

If a vehicle is usually less than five years, it is considered a low-risk vehicle. The higher the age of the vehicle, the more maintenance it probably needs. This is because the older the vehicle, the more its value depreciates.

The Capacity of the Engine

The type of engine and its capacity also play a critical role in determining the amount of your premium. For example, if you have a vehicle that runs on diesel, the motor insurance premium for it is likely to be more when compared to a vehicle that runs on petrol. The simple reason is that diesel vehicles are more expensive than petrol ones.

The capacity of the engine is referred to as cubic capacity (CC). It reflects the total power produced by your vehicle engine. The CC of your vehicle is one of the key components that help the insurer determine your premium. The higher the CC of your vehicle, the more expensive your premium is likely to be.

Install Anti-theft Devices

You can install anti-theft devices such as alarms, GPS trackers, steering wheel locks, and immobilisers to improve the security of your car. These devices help you to lower the risk of theft.

Anti-theft devices are one of the important motor insurance premium factors which help you to lower insurance premiums. Make sure the device is certified by the Automotive Research Association of India (ARAI).

Voluntary Deductibles

A voluntary deductible is the amount you agree to pay from your own pocket when you make an insurance claim. Your insurer may reduce your premium because you take on a part of the financial risk. Most importantly you need to choose a deductible only if you are confident that you can afford it during a claim.

No Claim Bonus (NCB)

A No Claim Bonus or NCB rewards you for not raising any claims during the policy year. It comes as a discount on your renewal premium. The longer you go without making a claim, the higher the discount you will get. You need to check the insurer's NCB policy before buying or renewing your car insurance.

Understand IDV

The Insured Declared Value (IDV) means the current market value of your car after depreciation. It is the maximum amount your insurer will pay if the vehicle is stolen or suffers a total loss.

A higher IDV increases your premium. On the other hand, a lower IDV reduces it. You must choose an IDV that offers the proper balance between coverage and cost.

Add on Coverages

Along with the standard comprehensive motor insurance plan for your vehicle, you can also choose add-on covers to protect your vehicle. There are several add-ons that you can choose from depending on your needs. Since they are an optional coverage that can be bought, you are required to pay an additional premium for them based on your needs.

Policyholder’s Financial History

The financial capability of the policyholder also impacts the premium of the policyholder. The insurance company may consider your credit score to get an estimate of your financial history. It helps the insurer to determine your capability of paying the required premium on time.

History of Driving

If you have a good history of driving, you are considered a low-risk prospect for the insurance company. Your premium is likely to be lower than an individual who does not have a good driving history. If you have a good driving history, you can also try to negotiate the premium amount with your insurance provider.

Location of Registration

Your location directly impacts the risks that your vehicle deals with on an everyday basis. The premium rates for vehicles in metro cities are different from those for vehicles in tier 2 or tier 3 cities. Usually, metro cities are considered high-risk locations compared to small cities. Thus, the registration location of your vehicle plays an essential role in determining the premium of your vehicle insurance.

You must compare several vehicle insurance plans before buying one. Also, you must read the fine print of the policy to avoid any problems at the time of claim.  

Final Words

Motor insurance premiums are influenced by several factors, including your vehicle's specifications, Insured Declared Value (IDV), location, coverage type, add-on covers, and claim history. Understanding these factors can help you choose a policy that balances comprehensive protection with affordability.

By comparing plans, maintaining a good driving record, and selecting only the coverage you need, you can optimise your premium while ensuring your vehicle remains financially protected against unexpected events.

Also Read: Bumper to Bumper Car Insurance Policy: Meaning, Benefits & More

Frequently Asked Questions

Does car insurance premium increase with age?

Not always. As your car gets older, its Insured Declared Value (IDV) usually drops. This can lower the premium. However, the final premium also depends on factors such as the car's condition, your claim history, the insurer's pricing guidelines, etc.

Will installing accessories in my car reduce or increase my car insurance premium?

It depends on the type of accessory. Accessories that increase your car's value should be declared to your insurer. This may lead to a slightly higher premium because the IDV can increase. On the other hand, approved anti-theft devices may help you qualify for a discount.

Do car insurance premiums differ within the same city?

Yes. Your location can affect your car insurance premium, even within the same city. Insurers assess the risk of each area. They consider factors such as accident rates, vehicle theft, and traffic conditions before calculating the premium.

Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.