Motor Insurance Premiums: Factors That Affect the Cost   

Motor insurance provides essential protection for vehicle owners, covering risks such as accidents, theft, and damage to third-party property. The cost of this insurance, known as the premium, is influenced by several factors and can vary significantly from one policyholder to another. By understanding what affects these premiums, vehicle owners can make better decisions and choose coverage that balances protection with affordability.

Why Understanding Insurance Premiums Matters?

When purchasing a motor insurance policy, the premium is the amount you pay to keep your coverage active. While it may appear to be a simple cost, several factors influence how this amount is calculated. These factors ensure that the policy is customised to your risk profile, vehicle details, and usage. Understanding these factors can help you make informed decisions and prevent unexpected costs when renewing or buying a new policy.

Factors That Affect the Premium

Several key factors influence the cost of your motor insurance premium. Knowing these can help you understand how your policy is priced and what affects your coverage cost.

1. Type of Policy

One of the main factors affecting premiums is the type of insurance policy. In India, third-party insurance is mandatory and usually costs less, while comprehensive insurance covers both third-party liabilities and your own vehicle, resulting in a higher premium. Comparing motor insurance online can help you make an informed choice based on coverage and cost.

2. Vehicle Age and Condition

The age and condition of a vehicle are key factors in determining its insurance premium. New cars generally attract higher premiums due to their higher market value and replacement costs. In contrast, older vehicles have a lower Insured Declared Value (IDV), which usually results in a lower premium. However, the likelihood of more frequent repairs for older cars can impact the overall claim amounts.

3. Insured Declared Value (IDV)

IDV, or Insured Declared Value, is the current market value of your vehicle, and it plays a significant role in determining the premium. The higher the IDV, the higher the policy’s cost. Since IDV represents the maximum payout you would receive in the event of total loss or theft, setting it correctly is crucial. While it might be tempting to lower the IDV to save on premiums, doing so can lead to reduced compensation when you actually need to make a claim.

4. Engine Capacity

The engine capacity of your vehicle, measured in cubic centimetres (CC), plays an important role in determining insurance premiums. Vehicles with larger, more powerful engines are often considered higher risk, which can result in higher premiums. For example, a luxury car or SUV with a high-capacity engine typically attracts a higher premium than a smaller hatchback.

5. Purpose of Vehicle Usage

How you use your vehicle affects your insurance premium. A car used strictly for personal commuting usually has lower premiums compared to vehicles used for commercial purposes. Since commercial vehicles are exposed to higher risks and cover longer distances, their insurance premiums tend to be higher.

6. Add-on Covers

When purchasing motor insurance online, you may come across a range of add-on covers that enhance your policy. Options like zero depreciation cover, roadside assistance, engine protection, or consumables cover offer extra protection but can increase your premium. For example, Bajaj General Insurance Limited offers flexible add-on options customised to individual needs, backed by a strong claim settlement process and a quick turnaround, ensuring policyholders receive reliable protection when it matters most.

7. Driver’s Profile and History

Your driving history and claim record have a direct impact on your premium. If you have a record of safe driving with no claims, you may be eligible for benefits such as the No Claim Bonus (NCB). On the other hand, frequent claims or traffic violations may increase your insurance costs. Insurers view careful drivers as lower risk, which translates into more affordable premiums.

8. Anti-Theft Devices

Installing certified anti-theft devices in your vehicle can help reduce your insurance premiums. Insurers recognise that these measures lower the risk of theft, making the vehicle safer to insure. Devices approved by organisations such as the Automotive Research Association of India (ARAI) can also contribute to a lower premium.

10. Voluntary Deductibles

A deductible is the portion of a claim you agree to pay from your own pocket before the insurer settles the remaining amount. Selecting a higher voluntary deductible reduces the insurer’s liability, which can lower your premium. This option is suitable if you are financially prepared to cover that portion in the event of a claim.

Tips to Manage Premiums

Managing your motor insurance premium effectively can help you get adequate coverage without paying more than necessary. Here are some practical tips to keep your premiums in check.

• Compare the best car insurance policies online before finalising one.
• Set a realistic IDV instead of lowering it excessively to save money.
• Make use of No Claim Bonus benefits by driving safely and avoiding small claims.
• Select only the add-ons you genuinely need instead of opting for all available options.
• Install certified security devices to qualify for premium benefits.

Conclusion

Motor insurance is not just a legal requirement but also a practical safeguard for your finances, protecting you against unexpected damages and liabilities. The premium you pay depends on several factors, including the type of policy, vehicle details, driving history, and location. Understanding these aspects can help you make an informed decision when purchasing motor insurance online, ensuring the right balance between coverage and cost.

Disclaimer:

Standard T&C Apply

Claims are subject to terms and conditions set forth under the motor insurance policy.

Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.