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5 Surprising Reasons You Pay More for Your Car Insurance

Ojaswi Indap Ojaswi Indap 13 July 2016

Do you know why you have been paying more for your car insurance all this while? Check out these reasons that will take you by surprise.

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Car insurance companies fix your coverage based on several factors. However, one thing remains constant here i.e. the fact that with higher risks, your car insurance premiums would increase. Of course, the kind of car you drive, where you live, and the previous driving history contributes to premium computation.

But along with the above, some other surprising things may cause an insurance premium hike. You may end up paying higher premiums for some or all of the below reasons-

The City Where You Live/ Drive

If you live in a metropolitan city, it is likely that you would be charged a higher premium. A Higher ratio of vehicles, an increased risk of accidents, thefts, etc. puts your car in the risk zone. Comparatively, people who live in suburbs or smaller towns experience less congestion, thus fewer accident hazards. This automatically lowers their premiums.

Your Add-Ons/ Customized Policy

If you are looking for a package that provides optimal cover with extensive add-ons, your premiums are also likely to increase. Apart from the mandatory coverage, a good customized policy is essential in case you own a luxury car or want a comprehensive coverage. Some of these include zero depreciation cover, engine protection cover, etc. that raises your premium significantly.

Voluntary Deductibles

VD comes under your customized policy category. A deductible is defined as the amount of the claim that you, as a insured, would bear towards every claim you raise, before the insurance company pitches in its share. If you go for a higher deductible, your premium is lowered. But it also means that you pay more out of your pocket in case of claim.

On the other hand, with lower deductibles, your premium tends to increase. This happens because the maximum costs would be taken care of by your insurance company. Deductibles vary by your previous claims, driving history, etc. In comprehensive coverage, you and your insurer usually fixes the deductibles.

Selecting a Vague IDV

IDV or insurance declared value is again fixed by evaluation and manufacturer's listed selling price. This includes the various parts of the cars, brand/model of the vehicle, when you had it insured, etc. It is then adjusted for depreciation as per the Motor Vehicles Act.

In some cases, you can opt for a higher IDV, which comes at a higher premium. IDV has a direct impact on your OD or own damage premium. But it doesn’t affect your third party insurance premium. With a lower IDV, your premiums go down.

But the risk here is that if a claim is made, your car’s market value is lowered too. Speculate and fix your IDV as per the market value to save more in the long run.

You’ve Been a Loyal Customer

It is strange but in the case of car insurance; loyalty might not be your best bet. Research shows that insurance vendors use a technique called price optimization for their regular customers. Data is collected basis your loyalty habits like sticking to the same grocery vendor, car mechanic, etc.

If you are less likely to shop around, you are less likely to change insurance vendors. So they may give you an additional 10% loyalty discount. But only after raising your premium at renewal by around 20%-25%

These are some surprising but genuine factors that increase your premium. Some extra research will come in handy before you invest in a car insurance policy.

Ojaswi Indap
Written by Ojaswi Indap
From microbial slides to slideshows explaining complex financial products – Ojaswi has come a long way. One of the first to join the content brigade at Coverfox, she has been on a mission to simplify insurance since then.