7 Factors That Determine Your Car Insurance Premium

It does not matter whether you own a two-wheeler or a four-wheeler, according to Indian Road Safety Act and Motor Vehicles Act, having third party liability insurance is mandatory to all vehicle owners.For the year 2018-19, Insurance Regulatory and Development Authority of India (IRDAI) has proposed lower rates for third party motor insurance for most vehicle categories.

Being a car owner, having an insurance policy that offers adequate coverage should be your top priority as there are few things which cannot be controlled.

Considered as a not-so-necessary expense, individuals in India tend to opt for the motor insurance policy which has low premium. They do not bother about the coverage. Those who understand its significance opt for an insurance policy that provides better coverage and at the same time ensure great value for their money.

Now let us check out the factors that affect the premium amount of car insurance.

Car’s Make

Things like your car’s make, model, engine capacity, manufacturing year and the date of registration are deciding factors that determine your car insurance premium. For instance, if you own a car that comes into the segment of luxury vehicles, your premium goes up. SUVs, High-end sedans, and imported cars usually attract higher premiums than hatchbacks, premium hatchbacks, and sedans. Also, cars that run on diesel invite higher premium than the ones run on petrol. IDV or Insured Declared Value of cars depreciate at a certain percentage annually, thus their manufacturing year and registration year also determine insurance premium.

Other than these, keep a tab on the number of claims and their car types. Based on the data, they classify cars, and the ones which are more prone to damage and accidents attract higher premium.

Nature of Usage

It is a legitimate reason that determines the premium of your car insurance. The nature of usage of a car decides how much the car owner might have to pay for its insurance. If it is for commercial use, then insurance companies see it as an investment as you will be earning an income through it. Also, cars which are used commercially are at a higher risk of accidents because they are driven more. Therefore, you will have to pay a higher premium for commercial use.

Safety Aspects

Since automobile industry is constantly striving to improve their cars on safety front, cars that have more and advanced safety features promote safe driving and reduce the risk of theft and damage due to accidents, and thus attract low premium than the ones that lack at safety features. Based on the features listed in the Automobile Research Association of India (ARAI), you are likely to get a deduction of 2.5% based on the safety features your car is integrated with.


The area where you live in also determines the cost of your car insurance premium. Top insurance companies use a term for it, and that is Insurance Zones. These are the areas where vehicles are more at a risk of theft and damage due to accident or natural disaster. If in case you live in an area that comes under insurance zones, it means insurance companies can charge a higher car insurance premium from you. This is one of the main reasons why car owners in urban areas are charged higher premium than the ones living in rural regions.

Credit Score

This is one of the factors that most people are less aware of. Top insurance providers decide your car insurance premium based on your credit history, maintained by CIBIL. If you have maintained a good score, you will be charged less premium.


As surprising as it may sound, your profession does play a role in determining your car insurance premium. Insurance companies do consider the fact that if your profession demands you using your car frequently; you work in a high risk environment. As a result, you pay higher car insurance premium as compared to those who work in a low risk environment.

Type of Coverage

Your car insurance premium directly attached with the type of coverage you choose. For instance, if you choose to buy third party insurance, you will have to pay low premium. A third party insurance policy covers for the damages caused to third person, property, or vehicle. However, with this policy, you cannot ask for claim for any damage caused to you or your car.

In case you choose to go for a comprehensive car insurance policy, you will be charged higher premium, but will get all the benefits of third party insurance plusthe coverage for yourself and your vehicle including theft and damage due to accident or natural disaster. Also, with add-ons, you can further extend the coverage as per your requirements.

Other than aforementioned factors, things that impact your car insurance premium are your age, gender, marital status, add-on covers, no claim bonus (NCB), zero depreciation cover, deductibles, etc.So next time you buy car insurance online for your car, you will be aware of the factors that shoot up the price of the premium.

About Carson Derrow

My name is Carson Derrow I'm an entrepreneur, professional blogger, and marketer from Arkansas. I've been writing for startups and small businesses since 2012. I share the latest business news, tools, resources, and marketing tips to help startups and small businesses to grow their business.

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