Why is New Car Insurance So Expensive in India?

A lot of first-time car owners are surprised to learn that the cost of insuring a new car is much higher than expected. However, the premium rates are not decided randomly. Insurance companies consider various factors while deciding policy premiums, from the car's price itself to the type of policy you choose. By understanding these factors, you can secure the right insurance coverage for your new car and avoid paying for features that may be unnecessary for you.Read more

Is Insurance for a New Car More Expensive Than for an Old Car?

Yes. It costs more to insure a new car than an older one. This is because a new car has a higher market value, costlier spare parts, and poses greater financial risk for insurers. Most new car buyers opt for a bundled policy that includes 1-year own-damage (OD) cover and 3-year third-party (TP) liability cover.

Moreover, they also opt for important car insurance add-ons to further enhance their coverage. All these components make the first-year car insurance expensive. Here is a table to better understand why insurance for a new car is expensive:

Have a look at this example that explains the real differences between old and new car insurance premiums for Tata Nexon (DL01 RTO):

Why this difference:

• New Car Insurance Premium: Higher IDV, add-ons, no NCB, and higher repair costs increase the premium.
• Premium for an Old Car: Lower IDV, NCB discount, and no add-ons help reduce the premium.

Reasons Behind Higher Car Insurance Prices for a New Car

Are you wondering why the insurance price of the new car you purchased is more costly than your old car? The reasons behind this can be many. From your car's make, model, age, and IDV to security features, all of this constitutes the price of your car insurance. Below we have mentioned some important reasons why your new car insurance is so expensive. Take a look:

1. Higher IDV means Higher Premium

   IDV, or the Insured Declared Value, of a car refers to the compensation that you receive in case your car suffers a total loss. This amount is directly proportional to your car's premium. If you increase the IDV of the car, its premium also increases and vice versa.

   IDV is ascertained by taking into consideration the ex-showroom price, variant of the vehicle and depreciation at the start of the policy. Due to higher cost and lesser depreciation at the beginning, a new car attracts a higher IDV thus resulting in a higher car insurance premium.

2. Costly Repairs

   The newer the car is, the higher will be its repair expenses in case it suffers any damage due to an accident. Moreover, a luxurious car, for instance, a Honda City will be more expensive to repair than a budget car such as a Wagon R. Car insurance companies also consider this factor while estimating the insurance premium of a four-wheeler.

   Since new cars are costly to repair, it increases the financial liability of an insurer, thus leading to a higher motor insurance premium.

3. Age of the Car

   The age of the car is also an important factor that makes new car insurance costly affair. The older the car is, the less will be its insurance premium. One of the major reasons behind this is the depreciation of the car. As a car ages, it starts to depreciate more, which in turn reduces the IDV of the car, thus leading to low car insurance premiums and vice versa.

   For instance, for a newly bought car, the depreciation would be roughly 5%, making the IDV 95% of the ex-showroom price, and thus the premium of such a car would be high. As soon as the car gets more than 6 months old, its depreciation will increase by 15%, thus reducing the IDV to 85%. This reduction in IDV will reduce the premium cost as well.

4. Higher Risk of Theft

   A brand-new car will also be at a higher risk of theft as compared to an old car, thus resulting in a high premium amount. Increased chances of theft will also increase the liability of the insurer at the time of claim settlement. Thus, the insurance company increases the premium of a new car insurance policy.

How is New Car Insurance Premium Calculated?

After the introduction of the online car insurance premium calculator, calculating the premium of a new car is not cumbersome anymore. Simply enter your new car details in the car insurance calculator and submit.

The online car insurance calculator will calculate the premium for your new car based on its model, variant, registration year and other details. Along with calculating car insurance prices, you can also compare car insurance plans from multiple insurers on Policybazaar.com and choose the one that suits your needs.

Is Showroom Insurance More Expensive?

Buying car insurance from the showroom may cost more because:

• High Dealer Commissions: Car dealerships act as agents and earn massive commissions from their partner insurers. This cost is directly passed on to you in the form of higher premiums.
• Limited Insurer Choices: Dealerships have tie-ups with only specific car insurance companies, which may prevent you from finding a policy at a cheaper premium.
• Convenience Pricing: Dealerships may justify the higher price by promising a hassle-free, cashless claim process at their service centre. However, cashless claims are available at authorised service centres regardless of where you buy your insurance.

How to Reduce New Car Insurance Premiums?

Here are some tips that you can adopt to lower the premium of your new car insurance policy:

• You can also choose to not buy car insurance from the dealer. Make sure to compare car insurance prices online before purchasing a plan.
• Install an ARAI-approved anti-theft device in your car to reduce your insurance premium
• Make sure to take advantage of company-offered discounts if any
• Set your IDV wisely so that it is at par with your car's market value. Increasing your IDV way too much will only increase your premium
• Choose add-on covers wisely. Only choose the covers that you need for your car to avoid paying a higher motor insurance premium.

Know These Myths Before Buying Insurance for a New Car

As a new car buyer, you should not fall for these common car insurance myths:

Myth 1: Every add-on is necessary for a new car

Not necessarily. The right add-on covers depend on your driving habits, location, and vehicle type.

Myth 2: Dealership insurance is always cheapest

While buying car insurance from a dealership may be convenient for some, comparing policies from multiple insurers can help you find adequate coverage at a lower price.

Myth 3: A higher premium always means better coverage

A higher car insurance premium might simply be because of a lot of add-on covers selected or a higher IDV. However, the quality of coverage depends on the policy's features and terms.

Wrapping Up!

The insurance premium you pay for your new car is based on its value, repair expenses, coverage needs, and risk factors involved. By understanding how insurers set premium prices and comparing multiple quotes, you can choose the right policy and avoid overpaying.