Factors Which Affect Car Insurance Premium

Factors Which Affect Car Insurance Premium

A car insurance premium is the amount paid by the policyholder to the insurance provider when purchasing a new car insurance policy or renewing it. You must pay the premium amount periodically; monthly, quarterly, half-yearly, or yearly. An insurance premium can be fixed or flexible. A fixed insurance premium means the amount owed remains the same throughout the policy tenure. A flexible insurance premium means the amount owed changes depending on the conditions outlined in the policy.

14 Factors that impact car insurance premiums

Your car insurance premium can be affected by a multitude of factors. The following are some factors that insurance providers consider before calculating your vehicle insurance premium. 

  1. Gender and marital status

Insurance providers consider men to be rash drivers and women to be safe drivers. It is why car insurance premiums are generally higher for males than females. The marital status of an individual also matters when calculating insurance premiums. Some insurance providers will offer a lower or higher premium based on your marital status. If you are married, the insurance provider will offer a lower premium. If you are unmarried, you may need to pay a higher insurance premium.

  1. Age and driving experience

The age and driving experience of the driver matters when calculating the four-wheeler insurance premium. Generally, people aged between 18 and 20 years old are more likely to be involved in a car accident than older people. If someone is between 18 to 20 years old, they must pay higher premiums compared to those who are older. Driving experience also matters as drivers with minimal or no experience pay higher premiums than those with years of experience.

  1. Driving record

Your driving record helps determine how low premium car insurance can be. People involved in many accidents in the past or those with tickets for exceeding the speed limit are considered high-risk. Such people will be required to pay a higher premium than those with a clean driving record (i.e. no accidents and no tickets). Your vehicle insurance premium will be low if you are an experienced driver with an impeccable driving record.

  1. Profession

Even though not many people are aware of this, your profession matters when purchasing car insurance and calculating the premium. Some professions enable you to get a lower premium due to their low-risk nature. For instance, if you work in a profession whereby you travel to risky places that can lead to car damage, you will be paying higher premiums. Examples of these professions are journalists who travel to high-conflict areas.

  1. Vehicle model

The four-wheeler specifics matter as they determine the car insurance premium. A sports car is considered risky and will carry a higher premium than a normal car. Vehicles that run on CNG or gas attract higher premiums. Expensive cars will have higher premiums due to higher repair costs. Cars with powerful engines are more expensive to insure than those with less-powerful engines.

The age of the vehicle also matters and certain insurers also take it into account when calculating the premiums. If you have an old vehicle, the chances of it getting damaged are higher during a collision than a new car. Older vehicles carry a higher premium due to this and are therefore expensive to insure. Older cars may also have a higher repair cost especially if certain parts of that car are not found easily at present. 

  1. Safety features 

Car safety features also determine the premium amount. When a car has anti-theft mechanisms in place or advanced features that lower the extent of damage during a collision, the premium will be much lower than a car that does not have these features. It is because such features lower the chances of damage and theft. You are also eligible for a four-wheeler insurance premium discount if you have the feature/device listed by the Automobile Research Association of India (ARAI).

  1. Insured declared value (IDV)

The IDV is the market value of the car at present and it is determined by the insurance provider. It is calculated by deducting the depreciation value and then estimating the current car price. The IDV decreases with time for vehicles because cars often lose their value the older they get. Four-wheelers that have a high IDV are more expensive to insure thereby having a higher car insurance premium compared to those cars with a lower IDV. 

  1. Location

The location or address of the driver can contribute to the premium amount calculation. For example, people living in safe places where theft is rare will have to pay a lower premium than someone who lives in an area where car theft or damage to a car is common. In India, cities are categorised as follows; metros and other cities. People who reside in metro cities tend to pay higher premiums for car insurance than those who live in the remaining areas. 

  1. Coverage type

The coverage is another factor that determines the premium calculation. If you choose minimal coverage (third-party insurance), the third-party insurance premium for the car will be lower than purchasing a comprehensive car insurance policy. If you buy add-ons (that are added on top of the basic insurance policy), the insurance premium will be more expensive. It is because you are getting specific coverage that protects you from a host of different factors.

When selecting the right policy, rather than focusing solely on premiums, the focus should be on the best possible car insurance coverage. Buying a comprehensive insurance policy with add-ons can give you peace of mind even if the premium is higher. Moreover, it can save you from unwanted out-of-pocket spending in the long run. It is better to be safe than sorry when purchasing car insurance in India.

  1. Claim frequency 

The frequency of claims plays a part in insurance premium calculation because claims show whether you have been involved in an accident or other troubles. Insurance providers also consider how many of these claims were successful and how many failed. If the driver has a history of making many car insurance claims, his premium will be higher. The insurance premium will be lower for someone who made minimal or no claims in the past. 

  1. Deductible

It is possible to choose a voluntary deductible that helps reduce your car insurance premium. A deductible is an amount you will pay when you make a car insurance claim. It is a fixed amount that is predetermined. The insurance provider pays the difference between the claim amount and the deductible. In such cases, the insurance provider charges a lower premium. You can contact your insurance provider about deductibles to see how much you can save when settling a claim.

  1. Where cover is purchased

Where you purchased the insurance policy also determines the premium. There are two ways to buy a car insurance policy; through an agent or directly from the insurance company’s website. Generally, insurance policies purchased online have lower premiums than those you purchase via an agent. It is also a lot easier and faster to buy a car insurance policy online as you can compare quotes conveniently.

  1. No Claim Bonus (NCB)

The no-claim bonus is a factor in calculating the car insurance premium in India. It applies only to those policyholders who have previously purchased a car insurance policy. If the policyholder has not made any claims during the stipulated time, he can receive a discount on the premium. You can get a 20% discount on the car insurance renewal premium. In some cases, the premium discounts can go up to 50%.

NCB is transferable to another car insurance policy and even a car. Let us say you have an NCB from an old car and you recently purchased a brand-new car. The NCB is still applicable in the new car. It applies to policy renewal as well. If you renew your policy before it expires, the NCB stays intact so you can enjoy the NCB benefits.

  1. Credit score

Many insurance providers in India consider the credit score when calculating car insurance premiums. Credit scores can make a big difference in such cases. For example, those with a good credit history have lower four-wheeler insurance premiums. However, if your credit history is poor (in the past or currently), then expect your vehicle insurance premium to be much higher in comparison. It is best to maintain a healthy credit score for multiple benefits. 

Importance of car insurance

According to the Motor Vehicles Act, 1988, the owner of a four-wheeler must have at least third-party car insurance. It applies to both new and used cars. Car insurance protects the policyholder by reducing liabilities, ensuring the vehicle gets repaired at certified garages in case of damages, and providing compensation in case of injury or death. Without a car insurance policy, a person can face hefty fines, legal action, and a loss of financial security. 

Key takeaways

The car insurance premium is calculated based on numerous factors like vehicle particulars, driver specifics, and insurance coverage requirements. Every individual wants a low premium, and many ways exist whereby you can get a discount on your car insurance premiums. However, it is advisable to choose a car insurance policy that provides coverage for your needs and then think about discounts rather than vice versa.

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How can I pay for my car insurance premium?

You can pay your car insurance premium quarterly, annually, or half-yearly. Most insurance providers also provide the option of paying in one instalment. The availability of this option can vary according to the type of insurance and premium amount.

How to save on car insurance premiums?

You can save on your premium in various ways; maintaining a good driving record, becoming a member of the Automobile Association of India, and opting for anti-theft devices for your vehicle. 

How is car insurance premium calculated for second-hand cars?

The same factors for calculating a new car insurance premium apply to the premium calculation for second-hand vehicles. Note that insurance premiums for vintage cars are calculated differently. 

Are car insurance premiums cheaper when purchased online?

Yes, car insurance premiums are cheaper when purchased online from the insurance provider’s official website. Nearly all insurance providers in India enable people to buy car insurance online safely. 

What is the car insurance rate?

The term car insurance rate is the same as the car insurance premium. They are interchangeable. 

How to get the best insurance rate?

You can get the best car insurance rate by comparing quotes from reliable insurance providers before purchasing a car insurance policy suitable for your needs. If you are eligible for discounts, you must speak to the insurance provider beforehand to ensure they apply them to your premium.

Does paying premiums timely guarantee my claim settlement?

No, it does not. You should pay your car insurance premiums timely even if there is no guarantee your claim has a higher chance of settlement. The claim settlement depends on whether your claim meets the terms and conditions as explained in the policy.

How to calculate the car insurance premium?

You can use an online insurance premium calculator to calculate vehicle insurance premiums. All major insurance providers in India offer a car insurance premium calculator which enables you to calculate your premium instantly. 

Does car modification lead to a change in premiums?

Yes, any changes you make to your vehicle will lead to a change in insurance premiums. Even if you slightly modify your car, you will pay a higher premium. It is best to consult your insurance provider to understand what happens to your premium when you perform car modification. 

What happens to my premium if I do not renew my car insurance policy?

If you do not renew your car insurance policy, your policy will expire. You will then need to purchase a new car insurance policy. The car insurance premium will be higher in such cases, so it is best to renew your car insurance policy promptly.

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