Know Why Your Car Insurance Premiums Rise Every Year

Car insurance is mandatory in India but that doesn’t feel like an unnecessary compulsion to many as it protects your car against unforeseen adversities. We all love our cars dearly and would not mind going to any lengths to keep it safe from any danger or threats. Besides, you may have spent a lot of money to buy your car and the last thing you would want is to see it get damaged. Therefore, it is always a good idea to purchase the best car insurance in India for your four wheeler.

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Above-mentioned prices are for a 7-year-old Maruti WAGON R AVANCE LXI (998 CC) registered in Gurgaon and 15 days before expiry of previous policy

If you have had your car for more than a couple of years, you might have noticed that your car insurance premiums increase every year. At every renewal, you may have paid a higher premium price for the same level of coverage. Have you ever wondered why does that happen despite a reduction in the value of your car due to depreciation? This article will tell you the reason for an annual increase in the price of car insurance price and what should you do to keep them low.

Why Does Car Insurance Premiums Increase Every Year?

The main reason behind an increase in your car insurance premium every year is the rise in third party insurance premium rates by IRDAI. For the unversed, third party insurance helps the policyholder to get financial assistance from his/ her motor insurer in case an accident results in any third party claims.

The IRDAI or the Insurance Regulatory & Development Authority of India sets up the third party insurance premium rates for all cars. At the end of every financial year, the IRDAI reviews the loss ratios of motor insurance companies and the total number of claims raised by car owners. After considering these factors, the IRDAI declares the third party premium rates for the next financial year.

In India, every car needs to have a third party cover under his car insurance policy. As per the Motor Vehicles Act, 1988, motor insurance with third party coverage is a legal compulsion for all cars plying on public roads in India. Therefore, whether you own a standalone third party insurance or a comprehensive car insurance policy, you will have to pay third party premiums. As a result, the car insurance premiums increase every year for third party insurance as well as comprehensive car insurance.

The third party insurance premiums rates for the financial year starting in April 2020 are provided in the following table. The rates will remain unchanged until further orders by the IRDAI.

Engine Capacity of the Car Third Party Premium Rates (April 2020 Onwards)
Less than 1000 CC Rs 2,072
Between 1000 CC to 1500 CC Rs 3,221
More than 1500 CC Rs 7,890

Factors Considered by Insurers to Determine Car Insurance Premiums

A motor insurance company considers several factors before offering a car insurance premium to a vehicle owner. These factors play a big role in increasing or decreasing your premium, especially for comprehensive car insurance. Take a look at the factors that determine the premium rates for the best car insurance in India:

  • Claim History

    The claim history of a car owner enables the motor insurance company to understand if he/ she is a responsible or risky driver. A person with regular or multiple claims in the past appears to be a risky driver as compared to a driver with no claim history. A risky driver is a bigger liability for the insurer and hence, is charged a higher car insurance premium.

  • Third Party Premium Rates

    Third party cover is a part of every car insurance policy, be it third party or comprehensive car insurance. Hence, every car insurance premium is inclusive of third party premium price decided by the IRDAI. If the third party premium rates have increased, your car insurance premium will also shoot up.

  • Insured Declared Value (IDV)

    The Insured Declared Value is the maximum claim amount which the insurer will pay you in case of a total loss. A higher IDV means the insurer will have to pay a higher claim amount and hence, it imposes a higher liability on the insurance company. As a result, the car insurance premium is higher for cars with a higher IDV.

  • Type of Car

    The car you drive also makes a big impact on the premium of your comprehensive car insurance policy. The premium for a luxury car is more than that of a compact hatchback car as the former is more expensive with costly spare parts. Thus, if you own an expensive car, you will end up paying a higher premium for your car insurance in India. Moreover, the premiums are also higher for discontinued cars as it is difficult to find their spare parts.

  • Age of the Car

    When it comes to determining the premium for a car insurance policy, the older the car is, the better. This is because brand new cars attract higher premium rates than older cars due to no depreciation. Every car suffers from depreciation over time and its value reduces with each passing year. Hence, you will have to pay a higher car insurance premium if you have purchased your car recently.

  • Location of the Policyholder

    Car insurance premiums are determined based on the probable threats and risks to a car. If you live in an area which is more prone to accidents, calamities or civil unrest, a greater risk looms over your car than a car whose owner stays in a relatively safer region. For example, people who live in flood-prone areas have more chances of getting their cars damaged. Hence, your car insurance premiums will be higher if you stay in a risky area.

  • Driving Habits

    Some motor insurers may also check your past driving records before offering a car insurance quote. This happens because driving records can help the insurer to understand your driving habits and how often you break traffic rules. If your driving record is bad, the insurer will see you as a risky driver and hence, will seek a higher car insurance premium from you.

How to Lower Your Car Insurance Premiums?

Third party premiums cannot be changed even for the best car insurance in India. However, you can lower your car insurance premiums by following the tips given below:

    • Build Your No Claim Bonus (NCB)

      One of the best ways to lower your comprehensive car insurance premiums is to build your No Claim Bonus. The NCB allows you to reduce the renewal premium of your car insurance by half if you don’t raise a single claim under your policy for five consecutive years. Thus, you should strive to build your NCB to lower your car insurance costs.

    • Avoid Raising Minor Claims

      Every time you make a claim, your NCB restores to zero and you will have to rebuild it. Hence, you should avoid raising claims that you can afford. In case your car has sustained minor damages, getting it repaired will not be very expensive. But if you raise a claim for such minor damages, you will lose your accumulated NCB that could have helped you save more money on renewal premium than the money spent on the repair of the car. Thus, avoid raising minor claims with your insurer.

    • Install Anti-Theft Devices in Your Car

      The whole idea behind car insurance is to keep your four wheeler safe. If you are able to lower the risk factor of your car, the liability of your insurance company automatically reduces. Lower the liability of the insurer, lower is the car insurance premium charged to you. Hence, you should install anti-theft devices in your car to prevent theft as well as to lower the premium of your car insurance policy as motor insurers offer a discount if safety features are installed in a car.

    • Skip Buying Unnecessary Add-Ons

      Add-on covers are the extra protection that you purchase for your car on paying a higher premium. For example, engine protect cover, nil depreciation cover, etc. However, not every add-on cover is necessary for all kinds of cars. For example, there is no need to buy tyre protect cover for a brand new car as its tyres are likely to be in good condition for at least a few years. Buying such unnecessary covers will only add to your comprehensive car insurance premium. Thus, you should only buy the add-ons that you really need.

    • Renew Your Car Insurance Policy on Time

      It is important to renew your car insurance before the expiry of the existing policy. Not only does it ensure continued protection of your car but also keeps your NCB safe. The NCB is only valid for up to 90 days from the expiry date of the previous policy. If your car insurance is not renewed within this time frame, you will lose your accumulated NCB. Thus, make sure to always renew car insurance policy on time.

    • Raise Your Voluntary Deductibles

      Voluntary deductible is the portion of the claim amount that you voluntarily agree to share with your motor insurance provider. When you opt for a higher voluntary deductible, you reduce your insurer liability towards the claim amount. As a result, the insurer lowers your car insurance premium. Make sure to opt for a deductible amount that you will be able to afford in case you raise a claim under your car insurance policy.

    • Say No to Modifications

      Any modifications that you can make to your car impacts your car insurance premium. High-end modifications increase the insurer’s liability, thereby, increasing your insurance premium. Thus, you should avoid unnecessary modifications to your car if you want to keep your car insurance premiums low.

Summing It Up

Car insurance premiums depend on a variety of factors. While you can do nothing about the annual increase in third party premiums, you can take the necessary precautions to keep your comprehensive car insurance premiums low. Make sure to follow the tips mentioned earlier and reduce your car insurance premium.

Written By: PolicyBazaar - Updated: 26 June 2021
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