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Does car insurance go down as cars get older?

Team AckoOct 6, 2021

The insurance regulator fixes the cost of a Third-party Liability policy, but the insurance company fixes the price of a Comprehensive policy based on the coverage and services. This is an important reason why the premium can differ for cars of the same model but with different manufacturing years. In this article, you will learn why car insurance goes down as the car gets older. 

First, let us understand the various factors that determine the cost of your car insurance policy.

Does car insurance go down as cars get older?

Does car insurance go down as cars get older?

The insurance regulator fixes the cost of a Third-party Liability policy, but the insurance company fixes the price of a Comprehensive policy based on the coverage and services. This is an important reason why the premium can differ for cars of the same model but with different manufacturing years. In this article, you will learn why car insurance goes down as the car gets older. 

First, let us understand the various factors that determine the cost of your car insurance policy.

5 components that affect car insurance premium

The policy premium is the cost you pay to buy a car insurance policy. In exchange, the insurance company insures you (the car owner) against different financial liabilities related to car damage or injuries as per the policy coverage. They weigh multiple options to determine the cost of car insurance. Here is a list of components that play a vital part in deducing the premium. 

  • Make/model of the car

The brand and car type, i.e. the make and model of your car, is considered for calculating the premium while processing the policy. This helps to set a range for Insured Declared Value, and the insurer can price the policy correspondingly.

  • Manufacturing year

Manufacturing year determines the age of your car. Age is used to understand the depreciation suffered by the vehicle. The premium will reduce in a fixed percentage as per the age (more on this in the next section).

  • Type of car insurance policy

The premium depends on the extent of policy coverage. While the Third-party Liability policy offers limited coverage and may cost less, a Comprehensive policy offers exhaustive coverage and may cost slightly more.

Note: You can buy Third-party car insurance online.

  • Number of add-ons

Insurance companies offer car insurance add-ons, i.e. additional coverages to enhance the car insurance policy. These are optional, but you must pay an additional premium to purchase these extra coverages. 

  • No Claim Bonus (NCB)

Whether you have NCB or not will be decided upon the renewal of your car insurance policy. If you made claims during the previous policy period, then you will not have the NCB discount. However, if you did not raise claims then you get a percentage-wise discount on the car insurance premium. 

The maximum NCB discount is 50% on the Own Damage Insurance (damage to your car) premium. You can get this by not raising a car insurance claim in five consecutive policy years.

Why does car insurance premium reduce with age?

A car is a depreciating asset which means the monetary value of a car reduces with time. Why is that? Because the car is subjected to regular wear and tear. 

For example, when the car’s seat covers are new, they look clean, the colours are bright and fresh, they have no cuts, and the material is even on all sides. But with time and usage, they wear out. The colours fade from temperature changes; they become dirty from stains, the material wears out from places where you touch it frequently. 

On a larger level, the above example can be used to describe the depreciation on a car. A car is used for travelling from one place to another. It suffers damages from accidents; the tyres wear out, working components like gears wear out. And the result is a drop in the monetary value of the car.

Car insurance companies use the following table to determine a car’s Insured Declared Value (IDV).

Age of the car Percentage of ex-showroom price for IDV calculation
Under six months 95%
More than six months, less than one year 85%
More than one year, less than two years 80%
More than two years, less than three years 70%
More than three years, less than four years 60%
More than four years, less than five years 50%
Five years and above The percentage will be decided mutually between the car owner and the insurance company.

FYI – IDV is the value of the car that a car owner declares while buying a Comprehensive Car Insurance policy. Insurers provide a range of maximum and minimum IDV. The car owner must select from this range or get in touch with the insurer to mutually decide the car’s insured value for the corresponding policy period.

You must have noticed that the manufacturing year (car’s age) is a major component affecting your car insurance premiums. Higher the age of a car, the lower is its value, and thus car insurance premium also reduces. This is why owners of the same car models with different manufacturing years pay a different sum while buying car insurance.

How to save on car insurance premiums?

A car owner can save money on the insurance policy in the following ways.

  • Buy car insurance online

Traditional car insurance involves many factors like insurance agents, operational costs, etc., that increase the premium. These factors are eliminated when you buy car insurance online. So, buy car insurance from a digital insurer like ACKO to get discounts.

  • Avoid buying all the add-ons

While add-ons increase the coverage of your policy, they can also contribute to premiums. The more add-ons you buy, the more money you pay to buy the policy. The trick here is to opt-in only for those add-ons that will be useful to you. Rest can be ignored.

  • Opt for voluntary deductible

There are two types of deductibles in car insurance, the first is compulsory, and the second is voluntary deductible. Paying the compulsory deductible at the time of claims is mandatory, while the voluntary deductible is optional. Opt for voluntary deductibles while buying a Comprehensive Car Insurance policy. You can get discounts on the premium as you are ready to bear a part of the claim amount by paying the voluntary deductible.

Apart from following the tips shared above, you can install a certified anti-theft device to reduce the chance of theft claims and get a discount on the premium. Also, consider getting a membership of any Indian Automobile Association and checking for a car insurance discount.

Takeaway

The cost of your car will reduce with age due to usage. This will also have an effect on the car insurance policy. The premium will go down upon each online car insurance renewal, this is in addition to the applicable No Claim Bonus or other factors that affect the cost of the policy.

Frequently asked questions

The following are some common questions about car insurance and how age affects the premium. Feel free to write to us at [email protected] if you have more queries.

FAQs

At what age is a car most expensive to insure?

As mentioned in the IDV table, a car is the most expensive to insure when it is brand new.

If car insurance for older cars costs less, then why are vintage cars more expensive to insure?

Car's current market cost matters while calculating the premium. Since the cost of vintage cars is usually higher, the insurance premium also increases. 

Does making a claim increase the premium?

Yes, making a claim against your car insurance policy will affect the NCB cycle, and you will lose any accumulated discount. This drop in discount will increase the premium at the time of renewal.

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