Factors that determine your car insurance price

Car insurance is a mandatory expense, but that doesn't mean it has to drain your wallet every time you insure your vehicle. Understanding the factors that affect car insurance prices can help you make informed decisions, ensuring you get the coverage you need without breaking the bank.

In this guide, we'll delve into the subtle aspects of determining your car insurance price.

Why do you need a car insurance?

Here are some key reasons why you should have car insurance:

Legal obligation: Vehicle insurance is a mandatory requirement as per The Motor Vehicles Act, 1988. Non-compliance can lead to monetary penalties and legal issues. Thus, make sure to buy vehicle insurance and keep the policy active by renewing it before its expiry date.

Financial security: From minor dents to major accidents, car insurance offers vital financial support for repairs or replacements, shielding your wallet.

Theft protection: In case of theft, your car insurance compensates for the Insured Declared Value (IDV), acting as a financial safety net.

Personal accident cover: Mandatory for unforeseen events, this cover provides up to Rs.15 lakhs for accidental injuries or death, offering peace of mind. Note that this cover must be purchased separately.

What is a car insurance premium?

The car insurance premium is the amount you pay to purchase or renew your car insurance policy. It's essential to remember that paying the premium doesn't guarantee claim payment; the insurance company assesses claims based on the terms and conditions outlined in the policy wordings, which act as a contractual agreement.

Factors that impact car insurance premiums

To make informed choices about your car insurance, it's crucial to know the factors influencing premium rates. Here are ten key points that can impact your car insurance price:

Make, model, variant: The genetic makeup of your vehicle significantly influences your insurance premium. Luxurious sedans might turn heads on the road, but they also raise eyebrows in insurance offices. The basic composition, manufacturer, type, and engine capacity all play a role. Choosing a humble hatchback might be lighter on your wallet.

Your vehicle's age: Just like a fine wine, older vehicles come with perks. Depreciation, the natural wear and tear, is less for older cars, translating to a lower Insured Declared Value (IDV). This means it costs less to insure an old faithful than a shiny new set of wheels.

Your location: Living in a bustling metro might mean more adventures on the road, but it also signals higher insurance costs. Urban settings, with their traffic woes and congested roads, are perceived as riskier. Tier three cities offer a breath of relief, both in terms of traffic and insurance premiums.

Policy type: The basic third-party policy is the legal guardian for your vehicle, covering third-party liabilities. But for a comprehensive embrace, there's the comprehensive policy, catering to own damage and third-party liabilities. Adding extras through add-ons beefs up your coverage but at an added cost.

Add-ons: Extra security comes at a price, especially in insurance. Add-ons like zero depreciation and passenger cover enhance your shield and hike your premium. Choose wisely, opting for only those add-ons that truly safeguard your interests.

No claim bonus (NCB): Being a cautious driver pays off. Insurers reward a clean claims slate with a discount on your premium during renewal. Don't be quick to raise a claim; weigh the NCB benefits before making that call.

Anti-theft devices: Installing a certified anti-theft device endorsed by the Automotive Research Association of India (ARAI) could shave off some premium. It's a small investment that could pay dividends in reduced insurance costs.

Deductibles: Opting for a Voluntary Deductible allows you to contribute a predetermined amount to a claim. This makes the insurance company liable for less, resulting in a reduced premium. It's a smart way to share the burden and save on costs.

Seller's influence: Agents and dealers might nudge you towards policies with hidden costs. Purchasing directly from insurers removes the middleman, ensuring you get a policy tailored to your needs without unnecessary add-ons.

The digital advantage: Digital Insurance: Embrace the digital age for insurance. Digital-first insurers like ACKO operate with lower operational costs, offering comprehensive coverage at competitive rates. Check out quotes online for a cost-effective insurance solution.

Additional factors influencing car insurance costs

Apart from the primary factors mentioned above, other elements can influence the cost of car insurance:

Fuel type: The type of fuel your car guzzles affects the insurance price. Diesel and CNG fuel types might incur higher costs due to variations in Insured Declared Value (IDV) and additional coverage for CNG kits.

Car value: The Insured Declared Value (IDV), reflecting the current market value of your car, directly impacts the premium. Higher car value means a higher insurance cost.

Shagun Sharma is an independent business journalist.