Factors Affecting a Car Insurance Premium: Here’s What You Need to Know

Author: Jeo George•Published on: 1/12/2026•6 Minutes

Overview:Car insurance premiums for similar vehicles may differ from one insurer to another. This variation is due to several factors, such as vehicle type, size, age, location (e.g., metro cities), and whether the insurance is third-party or full coverage. Thorough plans are more costly due to greater protection. IDV, NCB, and claim history can also affect the premium if any of these factors indicate a greater risk. Optional add-ons like zero depreciation cover and roadside assistance can also cause the premium to go up. On the other hand, the premium can be affected by the installation of an anti-theft device. Some of these are fixed, but you can help control your costs by maintaining a spotless driving record and avoiding claims. Pick only the options you need to help manage and potentially lower your car insurance premium over time.

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Key Highlights:

A car insurance premium is calculated every year based on the vehicle’s insured declared value (IDV).
The inevitable reasons affecting a car insurance premium are the type and age of the car and the location of registration.
Factors like no-claim bonus, add-ons selected, and claim history also affect the cost of a car insurance policy

Have you ever wondered about the variations (sometimes drastic) in car insurance premiums across various insurance companies for the same car? If you are curious about it, you are not alone. The price the vehicle owner/policyholder pays the insurer to keep their vehicle’s insurance active can vary across companies based on various factors.

While some of these factors are unavoidable, some of them are optional or tweakable to keep the car insurance premium as low as possible.

Here are all the factors affecting a car insurance premium.

Type of Car

The size of the car and the segment to which it belongs determine the scale of a car insurance premium. The larger and more expensive the vehicle, the more proportionately pricier its insurance premium will be, given that pricier cars have more costly spare parts and repair expenses, making the risk factor higher.

Age of Car

With every passing year, a car’s insurance premium also decreases, which happens due to a subsequent reduction in the car’s insured declared value (IDV). With time, the risks of a breakdown and wear-and-tear of a vehicle also increase. Besides these reasons, the increasing difficulty in sourcing parts of discontinued models, the IDV of a vehicle reduces, thereby reducing the car insurance premium too.

Location of a Car’s Registration

It might sound strange, but a car insurance premium also varies depending on the region in which it has been registered – the bigger the city, the more expensive the car insurance premium. Cars registered in bigger and metropolitan cities are more prone to the risks of theft and accidents, which makes their insurance premiums more expensive than those of vehicles registered in smaller towns.

Type of Insurance

In India, car insurance premium is broadly classified into two types: third-party and comprehensive. In comparison to a third-party plan, the comprehensive plan covers a broader range of damages, such as thefts, natural calamities and accidents, while also covering the damages caused by third-party liability. Due to this, a car insurance premium with a comprehensive plan, as the name suggests, is pricier than the plan in which only third-party damages are covered.

Insurance Declared Value

The Insurance Declared Value (IDV) is basically the current market value of a car, depending on factors such as age, condition and acceptance of the car model among the general public. It ensures the highest amount the insurer is liable to pay, in case the vehicle is subjected to theft or total loss. Various companies calculate the IDV of a car based on their own parameters. As a result, it is one of the most variable parameters of a car insurance premium – the higher the IDV, the pricier the insurance policy cost.

No Claim Bonus (NCB)

As the name suggests, no claim bonus (NCB) is a reward that a car owner gets in the form of a discount in every insurance renewal, in case there were no insurance claims taken by the car owner in the course of the previous insurance duration. The NCB of a car can reduce the cost of base insurance cover by up to 50% in the forthcoming year’s insurance policy cost.

Add-Ons Opted

Besides third-party and own damage cover, a comprehensive car insurance policy can be made more beneficial by opting for a few additional plans. These include zero depreciation cover, engine protection cover, roadside assistance, return-to-invoice, key protection cover, accessories cover, hydro-locking cover and more. The more add-ons selected in a car insurance policy, the more expensive it will be to purchase. However, the rewards of these add-ons obtained in the event of a mishap are highly beneficial.

Claim History

One of the most closely scrutinised items in a car’s track record is the number of times its owner has filed claims under its insurance policy to repair various types of damage. Once a claim is raised by a vehicle owner against its insurance policy, the no-claim bonus becomes null and void. However, suppose the frequency of claims against an insurance policy is high within a year. In that case, it becomes a matter of risk for the insurer, making the forthcoming car insurance premiums more expensive in the process.

Safety Devices

Modern vehicles come with the options of having anti-theft and tracking devices and telematics systems, which make the overall car ownership experience much safer and secure. Besides reducing the risks of theft and misuse, such devices and systems also make the car insurance premiums more affordable.

More Than Just Driving: How Your Choices Shape Car Insurance Costs

A car’s health and ownership record is not only justifiable by how well the owner drives and maintains the vehicle, but also by the type of car insurance and how it is used. Some factors, like the type and age of the car and the location of registration, are beyond the control of a car owner while availing an insurance premium for it. However, most of the other factors, such as claim history, no-claim bonus, add-ons opted, IDV and type of insurance, depend on the preferences and the way the car is driven and maintained.

FAQs

1. What are the factors that affect car insurance premiums?
Besides the type and age of the car and the location of registration, a car insurance premium also depends on factors such as claim history, no-claim bonus, add-ons opted, IDV and the type of insurance.

2. How is a car insurance premium calculated?
A car insurance premium is calculated based on the car’s insured declared value (IDV).

3. How can you reduce your insurance policy payment?
A car insurance premium can be reduced by reducing the car’s insured declared value (IDV) and not opting for the add-ons. However, following these steps will also increase the risks of expenses.