Why does Car Insurance Premium Increase during Renewal?

If you’re a good driver and you haven’t made any car insurance claims over the past year, it can be pretty surprising to see your car insurance premium go up during renewal. So, if you are left asking yourself: "Why did my car insurance premium go up? I had no claims and my car is only a bit older!", don’t worry we’re here to help. 

There are still other sets of factors that can make your car insurance premium increase. If you understand these, then you will be in a better position to find out how you can reduce this increase and save some money 😊 

Here are some reasons your car insurance premium might have increased since the last year, even when you haven't had any claims:

Your premium is the amount of money which you (as the policyholder) pay your insurance company to get coverage under your car insurance policy. In most cases, premiums are paid on an annual basis.

There are a lot of factors that can affect the cost of your premium, and some of them are:

• Insured Declared Value (IDV) of your Car - Your car’s IDV is basically the market value of your car and this is the maximum amount which an insurance company will pay in case of a total loss or total damage of your car; the higher your car’s IDV, the higher its premium will be.  
• Make and Model of your Car - Every car and its needs are different and therefore the make and model of your car will affect how much it costs you. Therefore, it will impact the IDV and premium of your car respectively. 
• The depreciation of your car - The depreciation is the actual value of your car and its parts over time, mostly due to wear and tear. The older the car, the greater is the cost of its depreciation which is inversely proportional to your IDV. The greater your car’s depreciation (basically the older it is), the lesser will be its IDV and premium. 
• The fuel type of your car - The type of fuel your car uses can affect the premium. Generally, diesel cars have higher premiums while electric cars have the lowest premiums.  
• Opting for Add-ons - A lot of add-ons can increase your premium rate, but a few (like a No Claim Bonus Protection) can actually reduce your premium if you haven’t made any claims during the year.
• Your geographical location - Often big cities have higher risks associated with them and so if you live in one, it’s likely your premium will be more. For example; the premium for a car in Mumbai would be higher than that of a car in Surat.  
• A No Claim Bonus or NCB - A No Claim Bonus is a renewal benefit insurance companies offer on the premium of your car insurance for those who have not made any claims during the previous year. So, if you have an NCB, your premium will be less at the time of renewing your car insurance policy.  
• Claims made in the last year - If you have made any claims in the past policy year, some insurers will increase your car insurance premium based on your claim history and driving history. 

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Seeing your premium increase each year is not a welcome sight, but here are a few factors, some of which are actually in your control, that can cause your insurance premium to go up:

Factors that are in your control

• Your driving habits: If you are the kind of driver who doesn’t follow road safety rules, by doing things like not wearing a seatbelt or running a red light, this can cause trouble with the law which can affect your insurance premium.  
• How many claims you have filed: In case you have filed a claim against your insurance policy in the past year, or you have a history of regular claims with your insurance company, it will increase the premium. It’s just simple math – the higher the risk, the higher the premium!
• The make and model of your car: As mentioned above, the make and model of your car (and therefore how much it costs) will affect your IDV. And the higher the IDV, the higher your premium will be. Additionally, if your car model is discontinued by the manufacturer then its parts will be hard to find, so the premium will increase for this as well. 
• Your choice of insurance company: Every insurer calculates premiums in slightly different ways, so this means that you need to find the one that works best for you own circumstances, especially now that you know the factors that affect your premium.  

Factors that are not in your control

• Your geographical location: This one is sort of in your control, but only if you have the ability to move; but generally, the city you live in can affect your premium. Big cities generally have more risk than smaller areas and hence demand a higher premium too.
• An increase in the third-party insurance rates: In India, the IRDAI is responsible for the regulation of third-party insurance rates*. And after a review, these rates are increased every year which can affect your own car insurance premium as well.  
• The age of your car: Due to the depreciation we mentioned above, the older your car gets, the more its value goes down – mostly due to wear and tear. In fact, the moment a new car is driven out of a showroom, its value is considered to have depreciated by 5%! All of this means that the older your car is, the lesser is its value and hence the premium price. 
• Your own age: As they say, the older the wiser, so in a big contrast to your vehicle, the younger you are (especially if you’re under 25 years of age), the more premium you end up paying!
• *This is because having at least a third-party insurance is mandatory in India.  
  

Despite all the factors that can make your car insurance premium go up, there are some ways for you to keep your insurance premium low. 

Here are some tips you can follow:

• Avoid raising small claims: The best thing you can do is to not raise small and minor claims during the policy period unless you really need to. This is of course only if you can afford to as well, and don’t want to lose out on your No Claim Bonus. 
• Check that your IDV is not too high: As we’ve mentioned, the IDV is the market value of your car and the maximum amount your insurance provider will pay if your car is stolen or completely damaged. But remember, if you incorrectly set your IDV too high, it can increase your premium too! So always make sure your IDV is true to your car’s value and not anything higher than that!
• Protect your NCB: Getting a No Claim Bonus Protection add-on cover can keep your NCB intact even if you make a claim, and so your premium will remain low during policy renewal. 
• Renew your policy on time: If you et your car insurance expire, you will end up having to pay a lot of fines, and as a penalty, you will also end up paying a much higher premium (with lesser benefits such as losing your NCB).
• Installing an anti-theft device: Many insurance companies offer discounts on your premium when you install an anti-theft device or other security features in your car, as it could eliminate theft and reduce risk.
• Avoid making too many modifications: When you make a lot of modifications to your car, such as adding a CNG kit, these modifications will also need to be covered by your insurance policy. This means that they will end up adding to your car insurance premium.  
• Choose the right add-ons: Choosing the correct add-ons can make a big difference to your premium. For example, No Claim Bonus Protection can keep your NCB intact, while with Zero Depreciation, your insurance company will not consider depreciation in your car when you make a claim. However, you must be very careful, to pick only those Add-ons which are required as they can otherwise add to your premium.