When you buy a brand new car, you have to pay a high insurance premium compared to an older car. It is a great idea to buy a financial cover in the form of insurance to ensure that you safeguard lakhs of rupees you spent buying the car. But, what happens as the car gets older? Does insurance premium remain as high as it was in the first year? To find this answer, read on about the effects of car’s age on car insurance premium:
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 car would decrease, and so will the IDV. Insured Declared Value is one of the main components determining the final insurance cost while calculating the amount of insurance premium.
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 offered by your car insurance company as a reward for not raising claims. NCB is the best way to avail of discounts on car insurance premiums. It is cumulative in nature. 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% |
From the very first claim-free renewal, you start getting a fixed discount on car insurance premiums. If you keep driving safely and do not raise a claim, it is possible to continuously get 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, which provides coverage for your specific requirements. Add-ons like Zero Depreciation and Return to Invoice are offered for brand new cars only. One can buy these Add-ons for the first couple of renewals. As the car gets older, you will not be provided with an option to buy some Add-ons. Additional coverages increase the cost of a car insurance policy. As this option is not available for an older car, the premium amount 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 part 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 is the amount of car insurance premium.
Claims
As your car gets older, its performance may degrade—important components like brakes, clutch plates, engines, etc., age with time. Malfunctioning of components 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
Unless the insured car owner has an active claim history, the car insurance premium will decrease with time. The above-mentioned factors like IDV, NCB, Add-ons, etc., are why one pays less car insurance premium as it gets older.
