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10 Factors Which Determine Car Insurance Premium?
Nikhila PSMar 26, 2026
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Car insurance premiums depend on a variety of factors that allow the insurance company to evaluate the level of risk your car and driving behaviour impose. These factors include your car's price, model year, and horsepower. Besides these, personal and insurance factors such as your claims history, address, and the type of cover you have selected also matter. In fact, the more risk a customer poses, the more expensive the policy becomes.
Knowing the factors that determine your car insurance rate will help you make wise choices, choose the right coverage, and maybe even find ways to lower your total cost.
Contents
10 Factors that affect Car Insurance Premium:
To ensure that you buy an affordable policy with adequate coverage, you should be aware of the following factors which determine your car insurance premium. Knowing them will help you to make the correct call when it comes to buying or renewing your policy.
Type of Car (Make, Model, Engine Capacity)
The car’s make, model, and engine size will largely influence the amount of your premium. Luxurious vehicles such as sedans and SUVs are often associated with increased premiums since their maintenance and parts are generally more costly. The insurance companies also perceive vehicles with larger engines as more dangerous, which leads to higher premiums.
Age of the Car
The age of your car determines its value and the amount of premium. Over time, the market value (IDV) of a car decreases, which in turn most often results in a decrease in premium. On the other hand, extremely aged cars might experience a slight increase in premiums due to frequent repairs and the difficulty of sourcing spare parts.
Location/Zone of Registration
The place where you register your car also affects the premium amount. Cities with highly congested traffic and a higher frequency of accidents, for example, Mumbai, Delhi, or Bangalore, tend to have higher premium levels. Cars in small towns or villages, on the other hand, are likely to have lower premiums due to lower risk.
Type of Coverage (Third-Party vs Comprehensive)
Because the coverage offered by a Third-party Liability policy is less, the cost is lower than that of a Comprehensive car insurance policy. However, the coverage offered is not enough which leaves the policyholder underinsured. If you want Comprehensive coverage, it will cost more than a basic Third-party policy! Simply put, premium increases along with the coverage offered.
Insured Declared Value (IDV)
IDV stands for Insured Declared Value, which is the present market price of the vehicle and the highest amount that can be claimed by the insured when the vehicle is completely lost/damaged, or stolen. Setting a high IDV will result in a costly premium, whereas setting a low IDV makes the premium cheaper. Selecting the appropriate IDV can help in balancing the cost and coverage effectively.
No Claim Bonus (NCB)
No Claim Bonus refers to a discount offered to a policyholder for not using the insurance claim facility during a particular policy year. It is a gradual process and can reduce your premium by as much as 50% if you do not raise any claims.
Avoiding minor claims will help you keep and build your NCB.
Add-On Covers Chosen
Add-ons provide extra protection but increase your premium. Common add-ons include:
Zero Depreciation Cover: Covers full cost of parts without depreciation
Engine Protection Cover: Covers engine damage due to water or oil leaks
Roadside Assistance: Helps during breakdowns
Return to Invoice: Covers the gap between IDV and invoice value
Claim History
If you make frequent claims, insurers may see you as a higher risk, which can lead to higher premiums. Also, making claims reduces your NCB. It’s better to avoid claiming for minor damages if possible.
Safety and Anti-Theft Devices
Installing ARAI-approved anti-theft devices is one of the ways you can get a discount or reduce your premium. Cars equipped with such devices are less susceptible to theft and hence less risky for insurance companies.
Deductibles:
You can opt for a Voluntary Deductible to reduce your insurance premium. This effectively means that you will contribute a predetermined amount to the claim amount. As a result, the insurance company has to pay less while settling a claim and therefore charge less premium.
How to Calculate Car Insurance?
It is fairly easy to understand the price of your car insurance policy before buying or renewing car insurance. All you have to do is use the car insurance premium calculator. Many insurers have a car insurance calculator on their website.
Car insurance calculator is nothing but a web form which you need to fill with details related to you and your car. The calculation of your car insurance premium will be done automatically and an estimated price will be displayed. Refer to this estimate and decide if you want to tweak a few factors to increase or decrease the price.
Frequently Asked Questions:
How does one use a car insurance calculator?
The best way to figure out the cost of a car insurance policy is by using a car insurance premium calculator. The factors mentioned above are used by the car insurance premium calculator. You simply have to mention the details asked and you will come to know the car insurance quote.
What should I keep in mind while comparing car insurance online?
A tried and tested way of finding an ideal car insurance policy is to compare car insurance online. Do spend some time comparing the features and inclusions and exclusions of the covers, prices, services offered and the insurer’s credibility while purchasing car insurance for the first time or at the time of renewal.
Is there a way to get discounts on car insurance premium?
For getting discounts on the car insurance premium, you can become a member of Automobile Associations of India, install anti-theft devices and last but not the least, drive safe for higher No Claim Bonus. You can also search for quotes from online insurance companies as they tend to offer policies at affordable costs without reducing the number of features or the quality of claim settlement services.
Do the factors mentioned above apply for a second-hand car?
Yes, the factors apply to a second-hand car as well. The points mentioned above are an overview but will apply to all types of cars except certified vintage cars. You will come to know the exact premium to be paid for your car once you go through the purchase journey on the online insurance company’s website. That amount will be inclusive of the tax charged.
| Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet; and is subject to changes. Please go through the applicable policy wordings for updated ACKO-centric content and before making any insurance-related decisions. |
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