Motor Insurance Prices These 11 Factors Determine Your Car Insurance Cost

Car insurance is mandatory in India under the Motor Vehicle Act. This does not mean you will have to spend a lot on everything when you buy or renew your motor insurance. The amount you’ll have to pay against your car insurance is affected by several factors. If you’re aware of which factors have an impact on car insurance, you’ll be able to save a few bucks on the insurance cost.

Though not all insurance providers follow the same parameters, below is a list of what typically determines car insurance costs.

Make, Class, Model, Variant

The make, class, variant and model of your car are factors to determine your car insurance premium. The insurance premium to insure a luxurious sedan can be higher than the premium for a hatchback. This is owing to the composition of your vehicle. Similarly, the premium for risker cars, like sports cars, is usually higher than the slower, standard vehicles. If the car against which you are buying the insurance policy has a higher cubic capacity or if the cat runs on gas or CNG, then you will have to pay higher premiums.


Location is another factor to impact car insurance premium costs. Purchasing motor insurance in a metro city will be more expensive than insuring the vehicle in a tier 3 city. Reason being, any vehicle in a metro city is more prone to damage, accidents, face increasing traffic, higher rates of vandalism, congested roads. So, the premium of car insurance in metro cities is higher when compared with a tier 3 city.

 Insured declared value/IDV

IDV or insured declared value is the amount that reflects the current market value of your car. It is the maximum amount your insurance company will pay in case of any damage to the vehicle or if the car is stolen. For example, assume that the market value of your car is Rs. 12 lakh at the time of purchase. This means the insurance provider will disburse a maximum amount of Rs 12 lakh.

In general, IDV is decided by the insurer. It presents the price estimation of your car after the deduction of depreciation value. Please note that the higher the IDV of your car, the higher the insurance premium will be.

 Car Owner

As an owner of your car, you also impact the car insurance costs. The better driving history you have, the lower your premium will be. The insurance industry determines the premium based on the owner’s driving record. If you have a record of serious traffic violations, or if you have met with accidents, it is likely that you would be paying more premium than a good driving record. In addition, you will have to spend more in case you are a new driver without an insurance track record.

Your Car Age

How old your car is determines your car insurance cost. The vehicle age considers two significant concepts related to motor insurance. 1. Deprecation 2. Insured Declared Value (IDV). The first one i.e. Deprecation is the reduction in the value of an asset because of natural wear and tear over a period of time. As discussed above, IDV is the approximate market value of a vehicle.  In general, if the old car has more depreciation and less IDV, then the cost of insurance will be less and more to insure a new car.

Add Ons Cover

Simply put, add-on covers refer to additional policy coverage that offers certain benefits to the policyholder injured as a result of a car accident, regardless of fault. No doubt, add-ons extend coverage and help car owners to deal with different situations. But you will have to pay additional premiums to buy add-ons along with your standard car insurance. Some of the common add-on covers are zero depreciation, key replacement, roadside assistance, return to invoice and so on.

Cover Required

In India, basic third-party motor insurance is mandatory. It covers third-party liabilities. On the other hand, a comprehensive car insurance policy covers Own Damage along with third-party liabilities. It gives you an option to enhance the coverage by choosing Add-ons. So, which of the two plans you are choosing affects the premium costs.

Since the cover under a third-party liability plan is less, the costs will be less in comparison to a comprehensive car insurance policy. However, the cover under third-party insurance will be insufficient and you will be underinsured. Choosing comprehensive car insurance will incur a higher premium, but at the same time, it will provide more coverage. In a nutshell, the insurance premium increases with the coverage offered.

No Claim Bonus (NCB)

NCB or No Claim Bonus is another factor to determine the car insurance costs. If you do not file any insurance claim for a particular policy year, your insurance company will offer you a discount at the time of renewing the policy. This discount is known as NCB. Companies offer NCB benefits for taking good care of your car. It is therefore advisable not to be in a rush for filing a claim. Look if the NCB is applicable before availing claims.

Safety features

Protecting your car with safety features such as an anti-theft device, car alarm or car lock in your car might fetch you a discount on your car insurance premium. However, the safety device should be certified by the Automotive Research Association of India (ARAI).

Precisely speaking, car alarms or anti-theft devices to protect your car, alert the owner by sounding an alarm when a theft is attempted. Today’s advanced vehicles are GPS-enabled which helps in tracking them down.


To reduce the premium amount, you can go for a Voluntary Deductible. Deductible refers to the amount paid out by you from your pocket before your insurer will pay any expenses. This means you will have to contribute a pre-specified amount to the claim amount. As a consequence, the insurance provider will pay less while settling a claim. So, a car insurance policy premium with a Voluntary Deductible is less.

Car Insurance Seller

Purchasing car insurance with the help of an agent may charge extra premiums. It is therefore important to either look for a reputable Insurance Web Aggregator for purchasing your policy or choose to buy directly from the insurance company. An insurance web aggregator collects, compiles, and provides complete information about insurance policies of different insurance companies on its website. They play the role of an intermediary between the insurance companies and the insurance buyers. The best part is they offer you a fair deal and charge no commission.


Now that you have understood all the factors that determine car insurance costs. Use them to make an informed decision when purchasing car insurance. It is important to read the Policy Wordings carefully to understand exactly the policy coverage, exclusions etc.

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