10 Factors that Influence the Price of Your Auto Insurance Policy

There are multiple factors that determine the cost of your car insurance policy; all are based on how likely you are to be involved in an accident. Not all insurance providers use all of the parameters mentioned below, but this list indicates the most relevant ones.

  1. Your driving history

    If you have a good driving history, you will be offered a lower premium. If there has been instances of serious traffic violations or accidents, you are more likely to pay a higher price for your policy. You may be required to pay more even if you are a new driver or if you have not held an insurance policy for a number of years.

  2. Usage of the car

    There are greater chances of being involved in accidents if you drive a lot. So, in case you drive your car to work regularly, or frequently travel long distances you will be paying more for the premium. Likewise, if you use your car only occasionally, you will be required to pay a lesser amount.

  3. Locality where the car is parked in

    Your area of residence and the locality where you park your car could significantly affect your premium. There are greater chances of theft and accidents in urban areas. So, people buying a car insurance in these localities have to pay more than those who stay in the rural geographies.

    Additional factors pertinent to the area that affect the cost of your car insurance are,

    Frequency of litigations and cost for the same

    Availability of medical care

    Cost of car repair

    Prevalence of car insurance fraud

    Trends in the weather

  4. Your age

    It is commonly seen that older drivers are involved in fewer accidents, in comparison to teenagers. So, insurance providers charge more for policies when the vehicle is driven by individuals below the age of 25.

  5. Your gender

    On an average, women are found to be involved in fewer accidents than men. They also have lesser driver-under-the-influence (DUI) collisions. Moreover, accidents in which female drivers are involved are generally seen to be less severe. So, women are more likely to benefit from lower premiums, in case other records pertinent to them are clean.

  6. Type of car

    Cost of insurance also depends on the type of car you are insuring. Variables such as the possibility of theft, cost of the car, size of the engine, cost of repairs and the complete record of safety of the vehicle influence your insurance quote. The presence of premium safety equipment in a car makes it liable to qualify for discounts in premium.

  7. Your credit score

    Most insurance providers consider the credit score of the driver as one of the most relevant and statistically valid tools in determining whether he would file a claim. It is also believed to indicate the average cost of the claim. The credit based insurance scores of an individual are determined from his payment history and its length, collections, bankruptcies and outstanding debt.

  8. The type of coverage and the amount insured

    It is mandated by law that you should purchase a minimum amount of liability insurance. These limits are generally low, and hence, people should consider purchasing more than the minimum requirements for effective protection from risks. If you have a new car, you will benefit from the purchase of a comprehensive insurance policy. Such a plan pays for damages to your vehicle when it is affected by weather, theft or other unforeseen circumstances.

    However, a comprehensive coverage is subject to deductibles. A deductible is the part of the amount that the insured would bear for each claim, before the insurance company provides its share. Your will be lower when the deductible is higher. Although the comprehensive cover is not mandatory for private ownership and usage of the vehicle, you will need to purchase it if you plan to lease your car to third-party.

    Other useful add-on coverages like zero depreciation cover and roadside assistance cover could also increase the cost of your insurance policy.

  9. Loyalty

    It is understood that insurance providers use a price optimisation technique to determine the premium for loyal customers. Then they offer their long-standing customers a 10% loyalty discount, after a 20-25% raise in premium at renewal.

  10. Inaccurate IDV

    Insurance declared value (IDV) is determined through evaluation and the car manufacturer’s listing of the selling price. This is inclusive of parameters such as the vehicle parts, the model of the car and when it was initially insured.

If the insured opts for a higher IDV, he will be required to pay a higher premium, and vice versa. IDV also has an impact on your own damage premium, but it does not affect third party insurance premium.

It should be noted that if you opted for a lower IDV to save on premium, your car’s value would be lowered in the event of a claim. So it is advisable to fix your IDV based on the market value for more savings in the future.

GST Update: GST of 18% is applicable on car insurance effective from the 1st of July, 2017

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