Does Car Insurance Go Up with a New Car? Here’s Why

Posted on: Feb 14, 2025 | 3 mins | Written by: HDFC ERGO Team

Does Car Insurance Go Up with a New Car? Here’s Why

When you buy a new car, one of the essential steps is to ensure it is properly covered by vehicle insurance. However, does car insurance go up for a new four-wheeler? The answer is yes; in most cases, the premiums tend to be higher for new vehicles. The reasons for this increase are linked to various factors, which we’ll explore in this blog. Understanding these factors can help you manage your insurance costs better.

Why is New Car Insurance so Expensive in India?

The high cost of comprehensive car insurance for a new four-wheeler in India is often attributed to the vehicle's value. New ones are typically more expensive than older ones, and insurance companies calculate the premiums based on the car’s market value. Therefore, a brand-new vehicle with a higher value leads to a higher premium.

Other Reasons Behind Higher Car Insurance Prices for a New Car

Several factors contribute to the increased cost of four-wheeler insurance when you purchase a new car:

1. Higher IDV Value of the Car

The market value of a new car is significantly higher than an older model, making it more expensive to insure. The IDV, or the insured declared value, is equal to the current market price of the vehicle. The higher the car’s value, the higher the payout an insurance company has to make in the event of an accident. This is reflected in the premium.

2. Increased Repair and Replacement Costs

New cars often come with modern technology and sophisticated parts. These can be more expensive to repair or replace compared to older car parts. This leads insurers to charge a higher premium.

3. Risk of Theft

New cars may be targeted by thieves due to their high value. As a result, insurers may raise premiums for new four-wheelers to account for the higher theft risk and compensation. This is especially true for high-end or luxury vehicles.

4. High-Performance Cars

Sports cars or high-performance vehicles often attract higher premiums. This is because these four-wheelers are designed for speed and power, which increases the likelihood of accidents, and repairs or replacements are costlier than standard vehicles.

How to Calculate New Car Insurance Premium?

The car insurance premium for a new four-wheeler is calculated based on several factors. Here’s how insurers determine it:

1. Insured Declared Value (IDV)

The IDV is the maximum sum assured by the insurance company in case of a total loss, and it is based on the current market value of your new car. The higher the IDV, the higher the insurance premium.

2. Car Make and Model

The make, model, and variant of the car play a significant role in determining the premium. Luxury or high-end models will have a higher premium than standard cars because they are more expensive to repair or replace.

3. Location of Registration

If your car is registered in a city where there is an increased rate of accidents, thefts, or natural calamities, the premiums will be high.

4. Add-ons or Extra Coverage

If you choose to add any additional coverage options to your comprehensive car insurance, like roadside assistance or engine protection cover, the premium will increase accordingly. These add-ons provide more protection but at a higher cost.

5. No Claim Bonus (NCB)

If you have owned a car and have not made any claims in the previous years, you may qualify for a No Claim Bonus. You can transfer this NCB to your new policy, which can reduce your premium.

How to Reduce New Car Insurance Premiums?

While the premium for new car insurance may seem steep, there are several strategies you can use to lower it:

1. Choose a Higher Deductible

A higher deductible means you will pay more out of pocket in the event of a claim, but your monthly or annual premium will be lower. If you're confident that you can handle a larger expense in case of an accident, this can be a good option to reduce your insurance cost.

2. Opt for Third-Party Insurance

If you don’t want the added expense of comprehensive insurance, you can opt for third-party car insurance, which is a more basic coverage option. It only compensates for third-party liabilities.

3. Install Anti-theft Devices

Many insurance providers offer discounts for installing anti-theft devices like GPS tracking systems, car alarms, or immobilisers in your new car. These reduce the risk of theft and thus can lower your insurance premium.

4. Maintain a Good Driving Record

A clean driving history with no accidents or traffic violations will help you get a lower premium. Many insurance providers reward safe drivers with discounts on premiums.

5. Compare Insurance Plans

Before purchasing insurance, it’s essential to compare different insurance policies from various providers. This allows you to find the best deal that suits your coverage needs at an affordable price.

6. Use Voluntary Excess

You can choose to increase the voluntary excess, which is the amount you pay towards a claim. In return, your insurer may offer you a discount on the premium.

Conclusion

In conclusion, car insurance premiums generally increase with a new car due to its higher value, potential repair costs, and the associated risk of theft or damage. However, understanding how premiums are calculated and taking steps to lower them can help you get insurance at an affordable rate.

Disclaimer: The above information is for illustrative purposes only. For more details, please refer to the policy wordings and prospectus before concluding the sales.

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