How Does the Car’s Value Affect Its Insurance Premium?


Purchasing a four-wheeler is both an aspiration and necessity to take care of commuting to work, running errands, or taking a road trip. Most people choose a car/model that is comfortable, safe, and within their budget. A few are connoisseurs who buy high-end cars. A luxury model is not only expensive but leads to a higher car insurance premium.

What are insurance premiums?

If you’re a car owner, you must purchase a valid insurance policy to drive on the roads. Car insurance policies are designed to safeguard the vehicle.

In India, you can purchase either a third-party insurance plan or a comprehensive insurance policy for your car. Third-party insurance policies will cover the damage caused to any third parties by your car. Comprehensive car insurance plans offer third-party and own damage insurance coverage. Comprehensive insurance plans are quite effective to protect you from repair costs.

No matter which insurance plan you choose, multiple car insurance products are available in the market. To make purchasing car insurance easy for customers, many insurance companies offer online facilities. Customers can look through the different plans available, compare the car insurance price and purchase online car insurance.

When you purchase a car insurance policy, you pay the predetermined car insurance premiums. Making the premium payments on time is essential. This will help you get the insurance proceeds under your policy quickly. The insurance premium for a car depends on several factors. Insurance companies provide the breakdown of the premium cost.

For instance, if you purchase TATA AIG car insurance online, you can use the insurance premium calculator they provide to understand the premium costs. In the total car insurance premium cost, the car’s estimated value is the most important element.

How does the car’s value affect the car insurance premium amount?

If the car’s market value is high, the cost of the insurance policy will also be high.

The reasons for the high insurance premium amount can be attributed to two reasons:

  1. Most high-end cars contain expensive parts. If the car gets damaged, the costs incurred for replacing the damaged parts would also be higher. Therefore, automobile insurance companies may have to provide more funds to cover repairs to such cars. The insurance premiums are correspondingly higher as compared to those for affordable cars.
  1. As high-end cars are expensive, they are vulnerable to theft or intentional damage. If the car is stolen or dismantled for off-market sale of parts, the cost of replacement is quite high. Insurance companies therefore charge a high premium for the insurance on these cars to service the high amounts that would be payable should a claim be lodged.

Besides the effect on the premium, your car’s value determines the type of insurance you should purchase. Although most car insurance companies usually only accept a third-party insurance cover for all the cars, some insurers may require you to get a comprehensive car insurance plan, especially for high-end cars. Insurance companies refrain from offering only third-party insurance coverage for expensive cars. This ensures that the car will stay protected, as third-party insurance policies don’t cover own damage.

How do automobile insurers calculate a car’s value?

When you buy insurance for your car, the insurers will calculate your car’s value to get the IDV. The Insured Declared Value (IDV) is the highest claim amount the insurance company will pay if you file a car insurance claim. The IDV is calculated after deducting the depreciation from the current market value. The current on-road price of a new car of the same model is not relevant.

The IDV is determined at the time of purchasing the insurance plan. A high IDV will result in a high claim amount. Hence, giving the accurate IDV value is important during policy purchase. You can go online and choose the policy that offers you an IDV closest to the car’s current market value. If your car is entirely destroyed and is beyond repair, your insurance company will provide you with the IDV amount.

In conclusion, if you’re planning to purchase a car insurance policy for your vehicle, you must keep your car’s market value in mind. Only then an accurate IDV can be determined. This way, you will get a decent amount under the policy if you have to lodge a claim.

Some Frequently Asked Questions:

  1. Does the value of a car affect the insurance premium?

Yes, the value of a car will have a direct impact on the insurance premium. A high value for the car will lead to a high premium under the policy. Therefore, insurance companies charge higher insurance premiums on expensive cars than on affordable cars.

  1. What factors affect your auto insurance premium?

Some of the most crucial factors are engine type, car’s value, type of coverage, your age, your geographical location, add-ons added to the plan etc.

  1. What makes a car more expensive to insure?

Generally, the cars that have a high value are more expensive to insure. Along with the risk of theft, the parts used in expensive cars cost much more to replace in the event of damage.

  1. How can I lower my car insurance premiums?

There are several methods you can follow to reduce your car insurance premiums. You can compare the different plans available, opt for high deductibles, maintain a good credit record, not raise minor claims etc.