When buying or renewing car insurance in India, many people are confused about how insurers decide the premium amount. Some cars cost ₹10,000 per year to insure, while others cost ₹40,000+.
In 2025, insurers use risk-based pricing models regulated by IRDAI. Understanding these factors helps you make smarter decisions and even save money.
Key Factors That Decide Car Insurance Premium
1. Insured Declared Value (IDV)
- IDV = Market value of your car (after depreciation).
- Higher IDV = higher premium, but better coverage.
2. Car Type & Engine Capacity
- Premiums vary for hatchbacks, sedans, SUVs, and luxury cars.
- Example: SUV with 2000cc engine costs more to insure than a 1200cc hatchback.
3. Location (RTO Zone)
- Cars registered in metro cities like Mumbai/Delhi have higher premiums due to accident & theft risks.
- Rural RTOs usually mean lower premiums.
4. Age of Car
- Older cars = lower IDV → lower premium.
- But higher risk of breakdown may increase repair-based claims.
5. Add-On Covers
- Zero depreciation, engine protection, roadside assistance, NCB protection → each increases premium.
6. Driver Profile
- Age, driving history, claim history all matter.
- Example: A 28-year-old driver with no prior claims pays less than a 22-year-old with accident history.
How Online Premium Calculators Work in 2025
Most insurers and aggregators (like PolicyBazaar, HDFC ERGO, etc.) provide free calculators.
Steps:
- Enter car details (make, model, year, RTO).
- Select coverage type (Third-Party or Comprehensive).
- Choose add-ons (zero dep, roadside assistance, engine cover).
- Calculator shows instant premium quote.
Pro Tip: Compare multiple calculators before finalizing.
IRDAI’s Role in Premium Regulation
- IRDAI fixes Third-Party (TP) rates annually (same across insurers).
- Own Damage (OD) premium varies by insurer → competitive pricing.
- In 2025, IRDAI has pushed for transparent premium disclosures so customers know why they’re paying extra.
Case Example: Ramesh’s Car Insurance
- Car: 2021 Sedan, IDV = ₹8 lakh.
- Location: Delhi.
- Add-Ons: Zero Depreciation + Roadside Assistance.
- Premium = ₹24,500 annually.
Without add-ons, premium would have been ₹18,000.
Lesson: Add-ons give better protection but raise costs.
Quick Infobox: Car Insurance Premium Components
| Component | Fixed by IRDAI | Varies by Insurer |
|---|---|---|
| Third-Party (TP) Premium | ✅ Yes | ❌ No |
| Own Damage (OD) Premium | ❌ No | ✅ Yes |
| Add-On Covers | ❌ No | ✅ Yes |
| GST (18%) | ✅ Yes | ❌ No |
Why This Matters
Understanding premium calculation helps you:
- Choose the right IDV.
- Avoid unnecessary add-ons.
- Compare quotes to save money.
Next, read: Why Car Insurance is Mandatory in India: Legal & Financial Logic
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