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5 Factors that Impact Car Insurance Premium


In India, motor insurance is compulsory by law. In addition to this, car insurance is also vital for personal safety and increasing cost of claims. However, car insurance can be quite pricey and the large premiums can burn quite a hole in your pocket. By understanding the factors that affect car insurance premium, you can choose the best policy for your needs that not only protects your finances but also ensures the safety for your precious asset.

Here are a few factors by which customer can manage the premium of their motor policies as per their requirement.

Type of Car Insurance and Add-on Covers

The customer has to decide the type of car insurance he wants to opt for. There are two basic types of car insurance covers which include:

Third Party Liability only- This is compulsory by law

Package Policy- Own Damage + Third Party Liability + Personal Accident

Also under of package policy, the customer can opt for add-on covers (Additional coverage provides added financial protection) in lieu of extra premium.


If the insured has installed accessories, then the Insurance of Accessories can be opted for by paying additional premium.

Electrical/Electronic Fittings
Electrical/Electronic items that are additionally fitted (not included in the manufacturer’s selling price of the vehicle) can be insured at an additional premium of 4% on the value of such fittings.

Use of CNG/LPG fuel
Any vehicle fitted with an RTA approved CNG /LPG kit, can be insured separately at an additional premium @ 4% on the value of the kit.

Based on the IDV

IDV means Insured’s Declared Value. It is the current market value of your vehicle. The IDV is fixed on the basis of the manufacturer’s listed selling price of the particular model at the commencement of the policy or renewal and adjusted as per the depreciation in the tariff.

For vehicle aged over 5 years, the IDV will be the value agreed between insurance company and insured

The Insured’s Declared Value (IDV) of the vehicle will be the ‘SUM INSURED’ for the purpose of tariff and it will be fixed at the commencement of each policy period for each insured vehicle.

Not exceeding 6 months 5%
Exceeding 6 months but not exceeding 1 year 15%
Exceeding 1 year but not exceeding 2 years 20%
Exceeding 2 years but not exceeding 3 years 30%
Exceeding 3 years but not exceeding 4 years 40%
Exceeding 4 years but not exceeding 5 years 50%

Deductibles and Voluntary Excess

Voluntary excess is an option that allows you to bear a certain amount of loss from every claim. For this option, you are eligible for a discount on Own Damage Premium (ODP).

Deductibles play a major role in premiums. If a customer chooses higher deductible, it means a lower premium. On the other hand, if insured chooses a lower deductible, it means a higher premium.

Rs.2500 20% on the OD Premium of the vehicle, subject to a maximum of Rs.750/-
Rs.5000 25% on the OD Premium of the vehicle, subject to a maximum of Rs.1500/-
Rs.7500 30% on the OD Premium of the vehicle, subject to a maximum of Rs.2000/-
Rs.15000 35% on the OD Premium of the vehicle, subject to a maximum of Rs.2500/-

No Claim Bonus (NCB)

If insured maintains a claim-free record, he accumulates the No Claim Bonus. This then translates into discount on the Own Damage Premium. An insured becomes entitled to NCB only at the renewal of a policy after the expiry of the full duration of 12 months.

No claim made or pending during the preceding full year of insurance 20%
No claim made or pending during the preceding 2 consecutive years of insurance 25%
No claim made or pending during the preceding 3 consecutive years of insurance 35%
No claim made or pending during the preceding 4 consecutive years of insurance 45%
No claim made or pending during the preceding 5 consecutive years of insurance 50%

Anti-theft Devices
If the insured installs anti-theft devices, approved by the Automobile Research Association of India (ARAI), he or she gets additional discount on the premium. The amount of discount is usually 2.5% of the premium to a maximum of Rs.500.

The price of motor insurance is constantly on the rise. By understanding the different factors that affect car insurance premiums, you can reduce the sting of the high prices and find the best car insurance policy for your needs.

Know more about Bajaj Allianz car insurance policies.

This article was authored by Namrata Porwal, Health Administration Team (HAT), Bajaj Allianz General Insurance Co. Ltd.

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Published on:21 Oct, 2014

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