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Uncovering the Factors Used in India to Calculate Premiums for Car Insurance

Car insurance is a mandatory expense, but that doesn’t mean you have to break the bank every time you buy insurance for cars. With the increasing demand for car insurance policies, leading insurance companies in India, like Tata AIG, have started offering various plans to meet the diverse needs of their customers. One of the most crucial considerations when purchasing a car insurance policy is the premium amount. However, it’s worth noting that several factors influence the premium amount. Insurance companies consider various aspects when determining the premium amount for your policy.

Nonetheless, by understanding certain factors that impact motor car insurance premiums, you can find ways to save money and still get the coverage you need. However, it’s essential to be truthful and provide accurate information to the insurance company when applying for coverage. However, there are ways to minimise your costs by taking advantage of specific factors that influence your 4-wheeler car insurance premium rates.

In this blog, we will explore some of the critical factors that influence how Indian insurance companies calculate car insurance premiums, helping you to understand how your policy cost is determined. Continue reading to learn more.

<h2> What Factors Determine Car Insurance Premiums? </h2>

Finding an affordable policy with sufficient coverage is necessary when buying car insurance. To make an informed decision, it’s essential to understand the factors that determine your car insurance premium. Here are some of the crucial factors you should consider:

  • Make, Model, and Variant


Car insurance premiums in India are significantly affected by the type and make of the vehicle being insured. For instance, guaranteeing a luxury sedan will likely cost more than insuring a hatchback due to its higher value and advanced features. The four-wheeler’s manufacturer, type, cubic capacity, and other vehicle specifications also play a critical role in determining the car insurance premium.

  • Age of the Four-Wheeler


The age of a vehicle is a crucial factor in determining the car insurance premium in India. Two critical concepts, Depreciation and Insured Declared Value (IDV) come into play while calculating the premium for a vehicle. Depreciation refers to the gradual reduction in the value of an asset due to natural wear and tear over time. On the other hand, IDV is the approximate current market value of the vehicle.

Generally, an old car will have more depreciation and a lower IDV, which translates to lower insurance costs. In contrast, a new car will have less depreciation and a higher IDV, leading to higher insurance premiums.

  • Area of Residence


The location where you reside and where your car is registered are critical factors affecting the car insurance premium in India. Insurance companies create various insurance zones based on the area’s risk of damage or theft. If you live in an area with a high risk of theft or damage, expect your car insurance premium to be higher.

The insurance premium may also vary based on the region where you live. For instance, car owners in metropolitan cities like Kolkata, Mumbai, or Delhi may pay higher premiums than those in smaller towns or rural areas.

  • The Type of 4-Wheeler Insurance


In India, the IRDAI sets the premium for third-party insurance, which is mandatory for all car owners. However, if you opt for a comprehensive cover, the premium may vary from insurer to insurer based on the discounts and rates they offer. Adding additional covers, known as add-ons, to your comprehensive policy will also increase the premium. When purchasing car insurance, it’s crucial to consider both the premium and the coverage offered.

While a lower premium may seem enticing, it’s essential to ensure that you have adequate coverage to protect against unforeseen events. You can compare car insurance policies and add-ons from various insurers and choose a policy that offers the right balance of coverage and affordability.

  • Number of Files Claimed


Safe driving is a crucial factor in determining car insurance premiums. Many insurance companies offer discounts to drivers with a clean driving record. One such discount is the No Claim Bonus (NCB), provided to drivers who have not filed any claims during a policy year.

The NCB can significantly reduce the premium upon renewal, with discounts increasing every year on consecutive no-claim years. Drivers can receive a maximum discount of 50% on their car insurance premiums if they have not filed a claim for five consecutive years. If you are due for car insurance renewal, it’s worth checking the car insurance calculator to determine the exact premium amount after discounts.

Wrapping Up

Whether you’re purchasing third-party insurance or a comprehensive policy, the insurance company determines the premium amount based on the factors discussed above. To determine the exact premium you need to pay each month, it’s best to use a car insurance calculator. Reputable insurance providers like Tata AIG offer this feature on its website for their policyholders.

Furthermore, before signing the policy document, it’s essential to inquire about the inclusions and exclusions of the policy, as well as any other terms and conditions. It will ensure that you have a clear understanding of the policy and will help you avoid any surprises or unexpected costs in the future.

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