5 Factors that Impact your Car Insurance Premium
If you are a car owner, you sure know how important car insurance is to keep your vehicle protected against unforeseen events like accidents. However, you don’t need to burn a hole in your pocket to get the right car insurance that offers you comprehensive coverage, if you have a clear understanding of the factors that have a direct impact on the car insurance premium.
Let us first understand what a car insurance premium is.
Car Insurance Premium
A car insurance premium is an amount that you pay regularly to an insurance company when you purchase a new car insurance policy or renew your policy from them.
In exchange for the amount that you pay, the insurance company promises to cover certain damages which are detailed in the insurance policy with applicable terms and conditions in writing.
It’s like a promissory note that stands as a point of reference when you want to place a claim for damages.
Top 5 Factors That Have a Large Impact on The Car Insurance Premium
A car insurance premium amount is undoubtedly the major deciding factor when you want to finalize the car insurance.
We all desire a car policy that offers maximum coverage, yet is affordable. So before you buy a car insurance policy, knowing what factors impact the premium amount can significantly help you to make an informed decision of picking a policy that gives sufficient coverage and is easy on your pocket.
1. Make/Model of Car and Engine Type – The make, model, and engine variant of the car have a paramount impact on the insurance premium amount. The premium amount to cover a car with a 1000 CC (cubic capacity) engine is lesser than a car that’s fitted with a 1500 CC engine.
Even the model of the car has an impact on the car insurance premium, the premium is higher for luxurious sedan cars when compared to the hatchback models.
2. Geographic Location – The demographic location also has an impact on the amount that you pay towards the car insurance.
People living in metropolitan cities pay higher insurance premiums when compared to 2-tier or 3-tire city dwellers. It is believed that the higher the traffic and road congestion, the higher are the risks of accidents and vandalism.
3. Type of Insurance Plan – Indian law mandates every vehicle owner to have at least third-party liability insurance that protects the car owners against financial liabilities towards the third party vehicle in case of an accident.
On the contrary, a comprehensive car insurance policy is an amalgamation of third-party insurance and own-damage car insurance, providing broader coverage to protect the owner’s car as well as the third party.
So, the type of insurance plan that you choose has an impact on the premium amount. A solo third-party liability policy will cost lesser than comprehensive car insurance for the simple fact that it offers very limited coverage. So higher the coverage with add ons, the higher is the premium.
4. Age of the Vehicle – With passing years and continual usage, the market value of the vehicle reduces because of the natural wear and tears, this is nothing but depreciation.
The Insured Declared Value (IDV) is the maximum claim that an insurance company will pay in case your vehicle is completely damaged beyond repair due to an accident, natural calamity, or even if the car is stolen.
The IDV is calculated based on the number of years the car has been used and the depreciation value of the car. Usually, an old vehicle will have a higher depreciation value and less IDV, which means you will pay less to insure an old car than a brand new one.
5. No Claim Bonus (NCB) – For every claim-free year the insurance company rewards the responsible owner by offering a discount on the insurance premium amount. So before you jump the guns, understand the no-claim bonus amount that’s applicable before you sign the dotted line.
Apart from the above factors, other things like gender, age, and driving habits also have an impact on the premium amount.
For example, if you like to take long road trips in your car as against just using the car only on weekends to run errands, you may end up paying a higher premium amount because of the higher exposure to risk.
The source of the car insurance also matters, if you get the policy through an insurance agent you may end up paying more because of their commission. Digital insurance makes perfect sense these days, as several reliable insurance companies like Godigt offers appealing car insurance policies with higher coverage at comparatively lower prices online.