7 Factors that Affect Car Insurance Premium

A car insurance premium refers to the amount which you pay to get insurance coverage for your car. On the basis of insurance coverage, there are two types of car insurance policies - Third Party Car Insurance Policy and Comprehensive Car Insurance Policy. Since the premium amount depends on the coverage provided, the premium amount for both types is different. Besides coverage, there are several other factors that affect car insurance premiums. Let’s discuss these factors one by one in detail.

Factors That Affect Car Insurance Premium

• Make, Model and Variant of Car: The make of a car refers to the name of the manufacturer (brand), model means the name of the different segmentation of the brand and variant/version means the particular label which is used to identify the car. For example, if we take Mahindra XUV300 W4, Mahindra is the name of the brand, XUV300 means the model name and W4 is its one of the variants. The car insurance premium amount is different for different MMVs.

• Type of fuel: A car insurance premium also differs with the type of fuel a car uses such as petrol, diesel, CNG, LPG and electric engine. Generally for CNG, the premium amount is increased by Rs. 60 plus additional taxes for third party policies. For comprehensive policy, the difference in premium amount is observed depending on whether the CNG kit is fitted externally or internally.

• Engine’s Cubic Capacity (cc): The premium of a car insurance policy also depends on the capacity of the car’s engine. A direct relationship exists between the engine capacity and the premium amount i.e. the larger the capacity, the higher the premium and vice versa.

• RTO (Regional Transport Office) Zone: Car insurance premium is also a factor of the location of the RTO at which the car is registered. In India, RTOs are divided into two zones - Zone A and Zone B. While Zone A includes 8 cities namely Delhi, Mumbai, Pune, Chennai, Kolkata, Hyderabad, Bangalore and Ahmedabad, Zone B encompasses the rest of the country.

• Age of the car: For a comprehensive policy, the premium amount also depends on the age of the car. The Insured Declared Value (IDV) offered by an insurance company for an old or aged car is lower than that of a new car. The age of a car affects the IDV because of the depreciation loss suffered the car. Thus, the premium amount for aged cars is lower than that of brand new cars.

• Owner’s age, profession and driving history: Several car insurance companies offer a discount on the premium amount to people belonging to a certain age group. For example, if the policyholder is in the age group of 35-45 years and he/she is an experienced driver, an insurance company may offer an additional discount on the Own-Damage (OD) premium for a comprehensive policy.

The profession of the policyholder is also taken into consideration while deciding the premium amount. As per the IRDAI guidelines, doctors, chartered accountants, defense personnel are eligible for a certain amount of discount on the premium amount.

The driving history of the car owner is also a determining factor for car insurance premiums. The driving history is reflected under No Claim Bonus (NCB) availed by the policyholder. If the policyholder has not lodged any claims throughout the previous policy period, an NCB Cover is offered to him/her as a reward for safe driving. However, if the policyholder had lodged a claim during the previous policy period, NCB is not offered.

NCB is offered on the own-damage premium of the policy and thus results in a reduced car insurance premium.

• Driving location: If the driving location is in an accidental prone area or in a heavy traffic city, the premium amount will be higher. Thus, car owners residing in metro cities like Mumbai, Delhi, Chennai, Kolkata are required to pay a higher premium amount than those living in other cities.

The Bottom Line

These are some of the crucial factors that affect the premium amount of a car insurance policy. The policyholder should always declare true and actual information about these factors while buying an insurance policy. Any false declaration about them can lead to hefty fines or cancellation of plan and more.

For further reading:

How Can I Reduce My Car Insurance Premium?

5 Reasons Why You’re Paying A Higher Car Insurance Premium!

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.