How The Age Of A Car Affects The Auto Insurance Premium

There is an inherent relationship between the age of a car and its auto insurance premium. The method of calculation of the policy premium is a math that all car owners should be aware of. Insurance companies consider all aspects of risk as evaluation factors that affect the cost of premium.

Underwriting Factors That Impact Premiums:

The actual evaluation parameters that affect auto insurance premiums vary between insurers. However, fundamental factors can be largely divided into the following categories:

  • The claims history of the insured car.
  • The place where the vehicle was registered. The locality where you stay will also impact the premium calculation. If the car is parked in an urban neighbourhood, or a highly populated area close to busy roads, you will have to bear a higher premium. Localities with increased incidences of thefts and crimes will also garner higher cost of policies.
  • Special features added to the vehicle after purchase, such as adding a music player or alloy wheels.
  • The engine capacity, fuel type and all other relevant features of the car.
  • Profession of the car owner. Insurance providers offer discounts to policyholders who are engaged in specific professions. So, if you are a government employee, a doctor, a soldier in the armed forces or a chartered accountant, you will receive special discounts on premium that people in other professions will not be able to avail.

Age Of Your Car At Renewal:

At the time of an auto insurance policy renewal, the age of the car will be highly prioritised. The age will be used to calculate the Insured Declared Value, i.e., IDV of the vehicle, and also the premium. The IDV is calculated based on the number of years the car was used and the depreciation on its ex-showroom price.

The table below details how the age of a vehicle influences its depreciation and subsequently the IDV.

Age of Car % Depreciation for calculating IDV
Less than 6 Months 5%
6 Months - 1 Year 15%
1-2 Years 20%
2-3 Years 30%
3-4 Years 40%
4-5 Years 50%

Cars that are older than 5 years are not included in this table. For such vehicles, the market value is assumed to be the IDV, and it is agreed upon through discussions between the insurance provider and the policyholder.

Apart from these factors, the premium is also influenced by the bonuses and discounts that the insurance company offers you.

Motor Insurance Bonuses:

  1. No-Claim Bonus - The no-claim bonus(NCB) is a benefit given to a driver for not making any claims during a policy year. The bonus provides a discount on premium for subsequent renewals of the policy. The table below shows how the NCB improves with the increase in the number of claim-free years.
    Claim Free Year Bonus (%)
    1 Year 20%
    2 Years 25%
    3 Years 35%
    4 Years 45%
    5 Years 50%
  2. Higher voluntary deductibles - The deductible is a part of the claim amount that you are required to pay before the insurance provider contributes his share. This is more useful for a driver with good driving history, as he would be able to make good savings on the cost of the policy. Opting for voluntary deductibles reduces your premium by an amount between Rs. 1,500 and Rs. 15,000. Your positive driving history may also earn you a discount on the deductibles - a win-win situation altogether.
  3. Loyalty discounts - If you are thinking of renewing your auto insurance policy with the same insurance company, you can enquire about loyalty discounts that are commonly offered by them. Most insurers provide loyalty benefits to policyholders for the purpose of customer retention.
  4. Discounts on the basis of memberships - If you are a member of registered groups like the Automobile Association of Upper India or the Western India Automobile Association, you can avail certain concessions on the premium of your policy.
  5. Safety installations - If your car is equipped with anti-theft devices or other modern safety equipments that are approved by the Automotive Research Association of India (ARAI), you are eligible for certain rebates on your auto insurance policy.
  6. Add-on covers - Opting for will undoubtedly, increase the premium. But add-on coverage acts as a security blanket that offers you protection from depreciation deductions and the like. If you opt for add-ons judiciously, you can benefit immensely in the long run. For instance, the Zero Depreciation add-on cover contributes an additional amount to the premium, but it can provide you adequate protection for eventualities.

In conclusion, it is important to weigh out the options available to you, in order to identify the coverage that best suits your insurance needs. You should also take care to avoid policy lapses, as this can disqualify you from discounts that you are eligible for. Apart from this, you should also compare policy pricing from multiple insurers at the time of purchase or renewal of your policy, to avail the best discounts and rates.

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

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