Factors That Determine Motor Insurance Premium

 When you buy motor insurance, you pay the insurance provider a fee in exchange for coverage against financial losses caused by an accident or other unfortunate event. As it is important to select the right car insurance plans, it is also important to understand the factors that influence the cost of car insurance. In this blog, we will study the factors that determine the premium of motor insurance and how you can use these factors to save money.

What is a motor insurance premium?

When you buy a motor insurance policy your vehicle is insured for a certain sum, and you make a monthly payment for the same, which is known as the premium amount. Today, the policies are so diverse that there’s a huge scope for you to customize them as per your own needs. This means that you can define your sum insured as well as the premium amount.

Paying more or less of a premium amount is a personal preference and depends on your budget. But to fix a premium amount, you have to understand the factors that are responsible for it.

Top 10 factors that determine your car insurance price and premium

Below are the top 10 factors affecting car insurance when setting your premium:

1.    Driving history

A clean driving record with no history of accidents or traffic violations demonstrates that you're a responsible driver, which can lead to lower premiums. Your driving history is one of the most influential factors in determining your car insurance premium. Past driving records, including accidents, tickets and violations are reviewed.

2.    Age and gender

As drivers gain more experience and age, their premiums may decrease. Statistically, younger and male drivers are more likely to be involved in accidents. This is why insurance premiums tend to be higher for individuals under the age of 25 and males.

3.    Type of coverage

Third-party coverage, which covers damage to others in an accident, is typically cheaper than comprehensive coverage, which includes protection against theft, vandalism and natural disasters. The type of coverage you choose greatly impacts your car insurance premium. The more comprehensive coverage you select, the higher your premium is likely to be.        

4.    Vehicle make and model

High-performance cars, luxury vehicles and sports cars usually come with higher premiums due to their increased repair costs and greater risk of theft. The make and model of your vehicle directly affect your insurance premium. On the other hand, family-oriented and safety-equipped vehicles often have lower insurance costs.

5.    Location

Urban areas with higher population densities tend to have more accidents and higher rates of theft, leading to increased insurance costs. Additionally, areas prone to natural disasters or extreme weather events may also result in higher premiums. Where you live can significantly impact your car insurance premium.        

6.    Annual mileage

If you have a lengthy daily commute or frequently drive long distances, you might end up paying a higher premium compared to someone who drives less. The more you drive, the higher your chances of being involved in an accident. Annual mileage is taken into account when determining your premium.

7.    Credit score

In many states, your credit score can influence your car insurance premium. Individuals with higher credit scores tend to have lower insurance premiums, as they are perceived as more financially responsible. Studies have shown a correlation between credit scores and the likelihood of filing a claim.

8. Engine capacity

The type of engine, as well as its capacity, defines the premium amount. If your engine runs on diesel, then it's possible that the insurance amount will be higher compared to a vehicle that runs on petrol, because diesel vehicles cost more than petrol ones.

The engine capacity, or cubic capacity, refers to the total power produced by the engine of a vehicle. The CC of your vehicle is directly proportional to the insurance amount. Hence, if you have a higher CC vehicle, you will have to pay a higher premium amount.

9. Add-on coverage

Add-on coverages for car insurance give you an opportunity to customize your policy. With these coverages, you can provide extra protection for your vehicle against various possible damaging scenarios. These coverages are not a part of your basic motor insurance policy and can be bought at an extra premium rate.

10. Additional discounts

If you have not raised a claim in the previous policy year, you get a No Claim Bonus discount on the renewal premium. Hence, before raising a claim, compare the claim amount with the NCB discount and you will know if it is feasible to file a claim and lose the NCB benefit or not.

Installing an ARAI-certified anti-theft device in your car can also get you a discount on car insurance premiums. If you opt for a voluntary deductible it will also reduce your premium amount.

Conclusion

To find the best premium rates for your vehicle, you should compare motor insurance online. It gives you more options to choose from and better clarity about your needs. Now that you know what influences your motor insurance premium rates, you can get customised motor insurance that fits your budget. Buy a motor insurance policy that suits your insurance needs from various insurance products and services with Zurich Kotak General Insurance.

FAQs

How is motor insurance premium calculated in India?

Motor insurance premium is calculated based on factors like the vehicle’s Insured Declared Value (IDV), engine capacity, registration location, claim history, add-on covers, and applicable IRDAI regulations.

What role does IDV play in determining motor insurance premium?

IDV represents the current market value of your vehicle. A higher IDV results in a higher premium, while a lower IDV reduces the premium amount.

How does No Claim Bonus (NCB) reduce motor insurance premium?

NCB is a reward for not making any claims during the policy period. It can reduce your premium by up to 50% on own-damage cover.

Do add-on covers increase motor insurance premium?

Yes, add-on covers like zero depreciation, engine protection, and roadside assistance increase the premium but provide additional protection.

Can voluntary deductibles help reduce insurance premiums?

Opting for a higher voluntary deductible can lower your premium, as you agree to bear a portion of the claim amount yourself.

Does making a claim increase the motor insurance premium?

Yes, making a claim can lead to loss of No Claim Bonus, which may increase the premium at the time of renewal.

Do traffic challans or driving history impact insurance premium?

While traffic violations do not directly increase the premium yet, insurers may consider driving behaviour in risk assessment in the future.