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Keep these Factors in Mind while Calculating Car Insurance Premium

Published on July 15, 2019. EST READ TIME: 5 MIN

It is a known fact that car insurance premium is not the same for everyone. And you must have also wondered why that is so. Now, the chief reason for this difference is that the premium amount is essentially a statistical evaluation based on multiple factors, which helps determine the level of risk to which your car is exposed.

A car insurance premium is an amount that you pay to the insurance provider for obtaining cover against the expenses incurred for the repair of the car in case of unforeseen events. For example, repairs might be needed in case of damages caused by accidents, natural or manmade calamities, or fires.

Factors that affect car insurance premium

You should be well aware of the major factors which govern your car insurance premium calculation .

  • Make and model of your vehicle
    The insurance premium for a luxurious car is going to be high as compared to the premium for a simple car. Your car’s manufacturer, engine’s cubic capacity, car’s model, etc. are going to play a major role in the car insurance premium calculation too.

  • Age of your car
    The age of your car will take into consideration two main factors i.e. Insured Declared Value of your car and depreciation. IDV is the approximated current market value of your car, whereas depreciation indicates the reduction in your car’s value due to natural wear and tear. If your car is old, it will have less IDV and more depreciation. So, the cost to insure your car will also be less compared to that of a new car.

  • Location or geography
    Usually, accidents are unpredictable, but they often depend on the area where you live. If you are residing in a metropolitan area that is thickly populated or is prone to thefts, then your car insurance premium will be high as well.

  • Your previous driving history
    If your previous driving history has been good, your car insurance premium will be low. On the contrary, if you have been involved in accidents frequently in the past, you are risk-prone. This can cause an increase in your car insurance premium.

  • Type of coverage
    Third-party car insurance policy is mandatory and will cover third party liabilities. And comprehensive car insurance offers both third party liability coverage and own damage cover. Since the cover provided by third party insurance is less, the premium for this is also less, as compared to that of a comprehensive policy.

  • Anti-theft device
    If you have installed an anti-theft device authorized by the Automotive Research Association of India (ARAI) in your car, then you can obtain a discount on your car insurance premium.

  • Deductibles
    A voluntary deductible can reduce your car insurance premium too. Via voluntary deductible, you will be contributing a pre-determined amount towards your insurance claim. So, your insurance provider will have to pay less during claim settlement. And hence, the premium charged will also be less.

  • Add-ons
    By opting for add-on, you can ensure complete protection of your car, but these are available at an additional price. So, it is advisable to choose only those add-ons that are essential for your car, so that the premium does not become excessive.

  • NCB
    During your car insurance renewal , your insurance provider will offer you a discount on your premium if you have not made any claims during the previous year. So, NCB can lower your premium.


All in all, while taking a car insurance policy, it is necessary to consider the factors that affect your premium, as discussed above. Things like NCB, your location, use of anti-theft device etc. can keep the premium low. So, make sure you understand how the premium is being calculated before signing the dotted line.

Disclaimer: The above information is for illustrative purposes only. For more details, please refer to policy wordings and prospectus before concluding the sales.

This blog has been written by

Mukesh Kumar | Motor Insurance Expert | 36+ years of experience in insurance industry

A veteran in the insurance industry, Mukesh Kumar has the expertise of handling various functions like Business Development, Underwriting, Claims, Human Resources, Quality Management and Marketing. With rich knowledge of the industry, he loves to share his views on topics of insurance sector and takes special interest in educating people on advantages of having insurance.

Mr. Mukesh Kumar recommends "getting your two wheeler insured from HDFC ERGO, a brand serving more than 1 crore+ customers. With overnight repair services and more than 6,800+ network garages, you can be assured of help in event of any damage to your vehicle.

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