8 Factors That Determine Your Car Insurance Premium

Know the major factors that influence the car insurance premium. These tips will help you curtail the car insurance price.

factors that decide your car insurance premium

The importance of car insurance policies in India is prominent but that doesn’t mean it has to burn holes in its bearer’s pocket. A penny saved is a penny earned, right? Knowing the right attributes, you can purchase an affordable policy with convenient benefits & coverage. This article will provide you all the information you need to know to make the right call. Take a look:


The car insurance premium is the amount you pay to the insurance company to purchase or renew your car insurance policy. You pay the premium and receive a policy document. That is the mode of transaction in the car insurance world.

The policy document is like a receipt or an assurance, which is bound legally by policy clauses and wordings. It’s basically a contract with terms and conditions of making a claim explained within it. Paying insurance premium regularly doesn’t guarantee that the company will surely pay for all your repairs and damages in the event of an accident as it depends on the terms and conditions mentioned in the policy contract.

That being said, a car insurance premium is an important influencing factor in the selection of the best insurance policy for your vehicle. Of course, everyone wants a policy that is financially convenient and makes their vehicle optimally insured.

The 8 factors listed below are those that cast a significant impact on insurance premium rates and they will help you clear your doubts so that you can make an informed decision-


Basic compositions like Vehicle’s manufacturer, its type, cubic capacity of the engine, etc. affect the car insurance premium directly. For instance, the premium for getting a luxurious sedan insured will be much higher compared to the premium for insuring a hatchback.


Depreciation and Insured Declared Value (IDV) are two very essential, interrelated concepts that significantly affect your premium rate. Depreciation is basically the reduction in the value of an asset due to natural wear and tear over time, and IDV can be explained as the estimated current market value of the vehicle. So, an old car will obviously have a higher depreciation and a lower IDV and as a result, it will cost less to get an old vehicle insured compared to a new vehicle.


Getting a car insured costs more in a metropolitan city compared to a tier-3 city. This is due to the fact that a car in an urban setting is bound to be more suspectable to accidents because of traffic jams and congestion road conditions.


A basic third-party liability cover is mandatory in India as per The Motor Vehicles Act and it offers coverage against third-party damages only. However, a comprehensive car insurance policy will cover your damage along with third-party liabilities plus you can also customize your coverage using Add-ons.

The coverage offered by third-party liability policy is less, therefore the premium rate is also low. However, third-party insurance doesn’t cover events like theft or natural disasters and thus leaves you underinsured.

Comprehensive insurance covers you against a wide range of adversities and naturally demands a higher premium compared to the former. In a nutshell, the higher the coverage higher is the premium rate.


Add-ons are additional coverages provided for extra security and maintenance. Like everything good comes at a price, add-ons are no exception. They come at an additional cost that adds to your regular premium. Some of the most sought-after add-ons are engine protection cover, zero depreciation cover, and roadside assistance cover. But you need to understand that you should select only those add-ons that are convenient and essential for you and conducive to your model, location, and usage pattern.


Installing extra security measures like anti-theft devices, theft alarms, steering & gear locks, etc. that are certified by the Automotive Research Association of India (ARAI) might fetch you a handsome discount on your insurance premiums.


Insurance companies offer discounts of up to 50% on your insurance premiums if you do not raise any claims during the policy period. You should be aware of this bonus (if applicable) before making any claim so that you can make an informed decision whether a claim is worth losing the NCB amount.

You should also refrain from making small claims for minor repairs that can very conveniently be done by a local mechanic at a cheaper rate.


Including voluntary deductibles with your insurance premiums can help you lower them. This is because by including deductibles, the policyholder pays a certain sum of money at the time of making the claim and the rest is paid by the insurance company. This is justified as the insurer has to pay less at the time of claim settlement.

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