Know why your car insurance premium increases every year

Posted on: May 19, 2020 | 3 mins | Written by: HDFC ERGO Team

Know why your car insurance premium increases every year

For most people, cars are much more than a necessity. They are not merely a means of convenience, rather most car owners are financially as well as emotionally invested in their cars. Thus, when it comes to securing their cars, most people do not mind going the extra mile and opting for the best possible coverage for their beloved car. But what most people do not understand is how car insurance premium works. And this often leads to confusion when they see that the car insurance premium is increasing every year.

Why Do Car Insurance Premiums Increase Every Year?

A car insurance policy needs to be renewed before the end of its tenure to ensure the continuity of the plan. However, even when you raise no claim in a policy year, you may find that the car insurance premium has increased. Wondering why it happens? There are several reasons for this increase in the premium rates. Below-mentioned are several reasons why your car insurance premium increases:

Factors within your control:

While seeing your premium increase each year might not be a welcome sight, it is something you should anticipate. There are a number of factors that can affect the premium of your car and cause your insurance premium to scale. However, there are some factors that are in your control. Read on to understand what they are and how you can try limiting your car insurance premium:

• Driving habits:

With distracted driving on the rise, it is no surprise that the no. of accidents is on the rise too. Defaulting on rules, not wearing a seatbelt etc could cause trouble not just with the lawmakers but also your insurance provider that keeps track of driving offences under your name. This will in turn increase your premium.

• Number of claims filed:

If you have a history of regular claims the insurance company will deem you as a risky profile and hence charge you a higher premium. It is simple math, the higher the risk more the premium.

• Make and model of your car:

Since the cost of the vehicle depends on the model, the insurance premium rate will differ between models. If the Insured Declared Value (IDV) is higher, then the premium will be higher compared to a car with a lower IDV. Also if your car model is discontinued by the manufacturer then its parts or components will be hard to procure. This can result in an increase in your premium, so choose your car accordingly.

Factors beyond your control:

When you understand how car insurance works, you would also understand that there are other factors that can greatly influence the car insurance premium but are beyond your control. Some of these factors are:

• Your geographical location:

Where you reside and park your car is also a factor that affects your car insurance premium. If you live in a region prone to vandalism or theft, your rates may increase to offset any potential losses.

• Increase in third-party insurance rates:

Third party car insurance is mandatory and covers liability due to third party claims arising out of accidents. The IRDAI is responsible for the regulation of Third Party vehicle insurance premium rates which are increased on an annual basis, thereby increasing your car insurance premium rate.

• Age of your car and the driver:

In contrast, as your car gets older your premium increases and the younger the driver the more premium you end up paying. The reason being an older car is more prone to wear and tear while a new and young driver lacks the experience of a seasoned driver. However, opting for Zero Depreciation coverage with your insurance plan will help reduce your premium marginally.

How to lower your car insurance premium?

No matter if different factors lead to an increase in your car insurance premium, there are tips and tricks to lower the premium for your car insurance. These tips are:

• Say no to small claims

In order to keep your NCB safe, you must refrain from raising small claims that you can easily afford. The saved NCB can be used to get better discounts during insurance renewal.

• Timely renewal of the policy

Your car insurance policy has a certain tenure. If you wish to continue availing the services, you must renew the plan before it expires. If you fail to renew your policy within 90 days of policy expiry, you would not be able to use the NCB discount. Hence, the car insurance premium will be higher.

• Plan your car's customisation

Customising your car can be fun. However, if you modify it too much, you may end up paying a comparatively higher premium. Adding hefty accessories, CNG, etc. all increase the premium.

Also, when you purchase the car insurance policy, make sure to purchase only the necessary add-ons to avoid extra premiums. Finally, you may also install an anti-theft device as it helps in lowering the car insurance premium due to the enhanced security of the vehicle.

• A higher IDV means a higher premium

Insured Declared Value is the value of your car that your insurer will pay you in case of theft or total loss of your car. So, make sure the IDV is fixed correctly. A higher IDV than the value of your car will only lead to a higher car insurance premium.

Conclusion

After knowing what leads to an increased car insurance premium, you must be able to make better decisions the next time. No matter if the premium increases, it is only wise to have a car insurance policy since it saves you from unforeseen hefty expenses. If you have an old car or you rarely drive, having a minimum of third party car insurance will also suffice. Benefit from the tips mentioned and try to make the most of your car insurance policy.

There are several other factors that come into play in deciding the premium of your car insurance. To know more about the factors and get the best quotes on your premium click here. Finally, opt for the one that is tailor-made for your needs and meets your budget too.

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

This blog has been written by

S. Gopalakrishnan | Motor Insurance Expert | 40+years of experience in insurance industry

A veteran in insurance industry. S. Gopalakrishnan is a name to reckon with in the field of reinsurance,he has headed the Reinsurance department and has rich experience in other fields of motor insurance. He loves to share his opinion on latest topics in the insurance industry and how he can help people in safeguarding their assets using insurance products.

Mr.S. Gopalakrishnan recommends "HDFC ERGO for your vehicle insurance needs, it has always put customer’s interest at the forefront, with round the clock assistance to deal with emergency breakdown issues and hassle free claims process. You can be assured of complete and reliable guidance through the whole process."

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