Factors Affecting Motor Insurance Premium

Ever wonder how the Car/Bike Insurance premium is calculated? While there is not particular formulae and Insurers have their own logic. But here are the few factors insurance companies consider in arriving at the premium.

1. Vehicle Details

This includes crucial information such as the vehicle’s age, make and model, engine specifications, and the type of vehicle (e.g., sedan, SUV, or electric). Newer or high-performance vehicles may incur higher premiums due to their higher market value and repair costs.

2. Location Details

The PIN code or location where your vehicle is primarily parked and used plays a role in determining the premium. Areas with higher crime rates or frequent accidents may result in higher premiums. Similarly, regions prone to natural disasters might also influence pricing.

3. Claim History : More Claims means more premium

Your vehicle's previous claims history directly impacts the premium. If the vehicle has a history of frequent claims, the insurer may charge a higher premium due to increased risk. Some Insurers might not even offer you an Insurance if your car has a claim. A clean claims history, on the other hand, can help in getting a lower premium or discounts like the No Claim Bonus (NCB). One more advantage of driving safe is you get lower insurance premiums.

4. Policy Coverage : Higher the coverage higher the premium

This refers to the scope of coverage provided by the policy, including the basic coverage (third-party liability or comprehensive) and any add-ons (such as zero depreciation, engine protection, etc.). The broader the coverage, the higher the premium, especially when opting for comprehensive policies with add-ons. This is Intuitive, more protection attacks more premium.

5. Insured Declared Value (IDV) : Higher the IDV higher is the premium

The IDV is the maximum amount you can claim in the event of theft or total loss of the vehicle. A higher IDV results in a higher premium as it indicates a higher payout in case of an accident or theft. Conversely, a lower IDV will reduce your premium but may not cover the complete replacement cost in case of loss.

Read more about IDV : here

6. Deductibles Amount: Higher the deductible lower premium

A deductible is the amount you pay out-of-pocket before the insurance company covers the rest. Opting for a higher deductible typically lowers your premium since you assume more of the financial responsibility in the event of a claim. However, this means you'll pay more in the event of a claim.

7. Anti-theft Devices

Installing approved anti-theft devices in your vehicle can reduce the premium amount. Insurance companies view such vehicles as lower-risk, which may lead to discounts on your policy. Devices like GPS tracking systems or immobilizers can also provide peace of mind, making your vehicle more secure. This is still in an evolving stage in India.

8. No Claim Bonus (NCB) Discount

If you haven't made any claims during the previous policy term, you become eligible for a No Claim Bonus (NCB). This discount reduces the premium amount at the time of policy renewal. The higher the NCB percentage, the lower the premium, rewarding safe driving and claim-free history.

9. Insurance Company

The insurer you choose plays a significant role in determining the premium. Eg : Digital-first insurance companies often have lower premiums due to reduced overhead costs from not having physical branches. These insurers use technology to streamline the process, offering competitive pricing and faster claims processing.

10. Driving Experience: 

Your driving record, including how long you've been driving and whether you've had any traffic violations, can impact the premium. A cleaner driving record often results in lower premiums. This is less prevalent in India

11. Add-ons and Extras: 

While add-ons increase the coverage, they cost over and above the premium. Carefully consider which ones are truly necessary, based on the type of car and your usage. Common add-ons include roadside assistance, engine and gearbox protection, and windshield coverage.

12. Type of Use: 

If your vehicle is used for personal or commercial purposes, the premium may vary. Commercial vehicles, or vehicles used for business, typically attract higher premiums due to the increased risk of accidents.

Summary: By evaluating these factors, you can make an informed decision and choose the best motor insurance policy that offers adequate protection while fitting your budget. It is best to reach out to a Professional Advisor.

At Honvest, Our Certified Insurance Advisors provide an honest and spam free advise on best Vehicle/Motor Insurances.