Home / Insurance / News /  Factors that affect your car insurance premium

Owning a car has become more of a necessity after the outbreak of covid-19 pandemic and the resultant social distancing norms. For insurers, motor insurance is one of the most important verticals.

As per the Insurance Regulatory and Development Authority of India’s (Irdai) annual report for the financial year 2019-20, the motor business continued to be the largest general insurance segment with a share of 36.50% against 38.08% in 2018-19, followed by the health segment with 30.10% market share compared with 30% in 2018-19.

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Motor insurance has two parts. The first one is compulsory third party cover, which protects the owner of the vehicle from legal liability arising due to motor vehicle accident—it may be injury or death of the third party or third-party property damage.

An own damage cover, which is optional for car owners, pay for expenses of repairs when a vehicle gets damaged and pays full insured declared value (IDV) when the vehicle gets total loss or stolen. IDV is pre-defined by the regulator on a yearly depreciation basis.

The amount of premium that you have to pay for your car insurance policy depends upon a number of factors. We take a look at these factors.

The larger part of insurance premium for motor is decided on the basis of the market value of the vehicle. Newer vehicles tend to have a higher premium, which reduces year-on-year with the market value and the usage of the vehicle. Moreover, premium may come on the expensive side if the car belongs to a premium brand.

“While there are other factors, which affect motor insurance premium such as engine size and purpose of vehicle, but the add-on covers makes a larger impression on the premium cost. There are several add-ons available for your motor insurance plan such as zero depreciation cover, engine cover, lock and key replacement cover, etc. The premium amount is directly proportional to the number of add-ons chosen by the policyholder. It means higher the number of add-ons, higher is the premium," said Naval Goel, founder and CEO,, an online insurance marketplace.

Moreover, the geographical location makes a significant difference in the premium. The premium calculation in India is divided into two zones – zone A and zone B. While zone A comprises prominent metros such as Kolkata, Chennai, New Delhi, Mumbai, Bengaluru, Hyderabad, Pune and Ahmedabad, zone B covers the rest of India. Hence, people residing in the zone A need to pay a marginal higher premium amount with the given dense traffic conditions where there are higher chances of accidents.

Keep in mind that there are some exclusions in a motor insurance policy. Compulsory deductible, depreciation on parts replaced, mechanical damages to the engine, transmission and all other parts, and the damages not caused due to accident are not covered under motor insurance.

An insurance company may also deny the claim when someone else is driving the vehicle without a valid driving license or driving a vehicle after consuming alcohol.

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