When buying a brand-new car, you must pay a higher insurance premium than an older car. Purchasing a financial cover in insurance is a great idea to safeguard the lakhs of rupees you spent buying the car. But what happens as the car gets older? Does the insurance premium remain as high as it was in the first year? To find this answer, read on about the effects of car age on car insurance premiums:
Effect of Car’s Age on Factors Which Determine Car Insurance Premium:
Insured Declared Value (IDV)
Insured Declared Value is the current market value of the car. With age, the market value of a vehicle would decrease, and so will the IDV. Insured Declared Value is one of the main components determining the final insurance cost while calculating the premium amount.
Vehicle IDV is the minimum amount paid to an insured car owner in case of a claim raised for a total loss. With age, the IDV of a car decreases, and so will the cost of car insurance.
No Claim Bonus (NCB)
No Claim Bonus is the discount your car insurance company offers as a reward for not raising claims. NCB is the best way to avail of discounts on car insurance premiums. It is cumulative. Here is how NCB increases with each claim-free renewal:
| Claim-free renewals | Discount |
| One | 20% |
| Two | 25% |
| Three | 35% |
| Four | 45% |
| Five | 50% |
| Beyond five | 50% |
You start getting a fixed discount on car insurance premiums from the first claim-free renewal. If you keep driving safely and do not raise a claim, it is possible to continuously acquire a 50% discount on each renewal beyond five years. This will decrease the cost of car insurance premiums with age if no claims are raised.
Add-ons
Additional coverage options or Add-ons are an excellent way of enhancing your Comprehensive Car Insurance Policy. They help you buy a customized policy that covers your specific requirements. Add-ons like Zero Depreciation and Return to Invoice are only offered for brand-new cars. One can buy these Add-ons for the first couple of renewals. As the vehicle ages, you will not have the option to buy some Add-ons. Additional coverages increase the cost of a car insurance policy. This option is unavailable for an older car, so the premium will not be more than for basic coverage.
Car Parts
Depending on your car’s make and model, the availability of car parts might be the question if your car is damaged. Parts for older cars are difficult to obtain. Also, the value of each piece reduces with time; this is called depreciation. Here is how depreciation is calculated.
| Item | Rate of Depreciation |
| 50% |
| 30% |
| 50% |
Depreciation reduces the overall value of the car. This also affects the cost of car insurance. The older the car, the lesser the amount of car insurance premium.
Claims
As your car ages, its performance may degrade—important components like brakes, clutch plates, engines, etc., age with time. Malfunctioning parts may cause accidents, which consequently result in you raising claims. Claims cause the NCB cycle to drop down to zero. This will increase the cost of car insurance. The best way to keep your car in good condition to reduce claims is to get it serviced at authorized centers.
Conclusion
The car insurance premium will decrease with time if the insured car owner has an active claim history. The factors mentioned above, like IDV, NCB, Add-ons, etc., are why one pays less car insurance premium as one age.
