Car insurance premiums are determined by far more than just the vehicle itself, with factors like location, driving behavior, claim history, and coverage choices significantly impacting costs and potential annual savings.
22 Oct 2025 | 3866 Views | By Paras Pasricha, Policybazaar
When it comes to car insurance premiums, most of us think of it as a straightforward deal. You just buy a car, pay a premium, and get it insured. But in reality, what you pay for your motor insurance depends on far more than just the car itself. There are ...
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When it comes to car insurance premiums, most of us think of it as a straightforward deal. You just buy a car, pay a premium, and get it insured. But in reality, what you pay for your motor insurance depends on far more than just the car itself. There are so many factors that actually shape your premium. These include, but are not limited to, the kind of vehicle you drive, where you live, how you use your car, how responsibly you drive and even how much you drive.
Most buyers usually focus on discounts on the car or dealer offers. That is just a one-time saving. On the other hand, understanding the underlying factors that shape your insurance premium can help you save money every year resulting in substantial long-term savings. So, let us look at some important facts that decide your motor insurance premium.
The Car Itself
Let’s start with the obvious. One of the most important factors that help shape your insurance premium is the kind of car you own. If it is an expensive car like a luxury SUV, then obviously it would be quite expensive for the insurer to cover the cost of the repair or replacement of your vehicle should it face an accident or gets stolen. Insurers assess risk based on these possibilities and hence a luxury SUV will naturally attract a higher premium than a hatchback.
Even within the same segment, certain variants can push up your cost. For example, a diesel or CNG car usually has a higher premium than a petrol one, as the engines are more expensive to repair and maintain. Similarly, insuring an Electric Vehicle is also more expensive because of higher vehicle acquisition cost, expensive components and specialised repairs.
Driving Habits and Claim History
Your driving record speaks volumes to an insurer. A clean driving history, with no traffic violations or accidents, signals low risk and may even get you a better deal. The same logic applies to your claim history. Every year you don’t raise a claim, you earn a No Claim Bonus. NCB is a discount that can go up to 50 per cent over time. But even one claim can reset it to zero.
This is why many car owners choose to pay for small repairs out of pocket rather than lose their NCB. Over time, the cumulative discount can significantly reduce your premium.
Another important feature that most people are unaware of is Usage-based insurance (UBI) or “Pay As You Drive” policies.
These motor insurance plans charge the premium according to how much you drive. So if your vehicle is not frequently used, you can go for this option to make substantial savings.
Insured Declared Value (IDV)
IDV is basically the current market value of your car and it is one of the biggest determinants of your premium. Simply put, it’s the maximum amount your insurer will pay if your car is stolen or completely damaged. As your car ages, its IDV depreciates, which means your premium will also go down each year. One can also voluntarily go for a lower IDV, which would reduce the premium. However, this also means a lower payout in case of a claim. So one should go for a balance between affordability and adequate coverage.
Location and Vehicle Usage
Where your car “lives” matters as much as how you drive it. Vehicles registered in metro cities might attract higher premiums than those in smaller towns because of greater exposure to traffic, theft, and accidents. Likewise, whether you use your car for personal use or commercial purposes also impacts your premium. Since commercial vehicles, which are used more frequently and face higher wear and tear, have higher premiums compared to private cars. With the rise of the gig economy, even cars used for app-based services or rentals may need specific commercial coverage.
Deductibles and Discounts
A lesser-known factor that impacts your premium is the deductible. It is the amount you agree to pay out of your pocket during a claim. Opting for a higher deductible can reduce your annual premium, but it also means more expense at the time of a claim.
Coverage Type
In India, every vehicle owner is mandatorily required to have at least a third-party insurance policy. Such a policy covers damage or injury caused to others. But that’s just the bare minimum. While it is cheaper, it does not protect you or your vehicle in case of a mishap. A comprehensive policy, which covers both third-party liabilities and own damages, gives much better protection.
In fact, you can also extend your cover with add-ons such as zero depreciation, engine protection, 24x7 roadside assistance, key replacement etc. Each add-on slightly increases your premium but can save you significantly during a claim. For example, zero-depreciation add-on ensures you get full value for replaced parts, instead of the depreciated amount.
Smart Ways to Save
Online comparison platforms make it easier than ever to compare multiple quotes and choose the most competitive premium. Buying online also eliminates dealer commissions, giving you direct savings.
Installing authorised anti-theft devices is another smart move. It reduces the likelihood of theft and can fetch you discounts on your own-damage premium.
So, the next time you’re comparing cars, remember that it’s not just the sticker price that matters, but also the recurring cost of insurance. Just like you compare cars and dealers, and hunt for good deals, you must also compare car insurance policies to save money on the long run. Doing it online hardly takes more than a few minutes but can result in huge savings. But remember that while saving money on insurance is not a bad idea, at the end of the day, the goal isn’t just to pay less; it is to get the best value for the protection your car truly deserves.
Paras Pasricha is the Head of Motor Insurance at Policybazaar. Views expressed are the author's personal.