Are You Overpaying For Your Car Insurance? Your Premium Might Not Reflect Your Car's Value

Renewal costs often remain unchanged or even increase because of factors such as add-on covers, insurer pricing strategies and confusion around the Insured Declared Value (IDV).

Understanding how your policy is structured can help you avoid overpaying and negotiate a better deal at renewal.

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• Scrutinize add-ons, compare quotes, negotiate for savings.

Each year, your car loses value. As it gets older, people start doubting its reliability, the kilometres tick, and if you take it to the market, you will be offered less than you expect. If the car is getting cheaper and the sum being insured is getting lower, why did your premium stay the same, or get even more expensive?

Insurers say it is because the car is older. That explanation, however, does not hold up to scrutiny.

Two Parts To Every Policy

To understand why, you need to know how a motor insurance policy is structured. It has two components. The first is third-party, or TP, liability cover. This is mandatory under law, and its premium is fixed by the Insurance Regulatory and Development Authority of India, or IRDAI. You cannot negotiate it.

The second is own damage, or OD, cover. This protects your car against theft, accident, or damage beyond economical repair. Unlike TP, the OD premium is set independently by insurance companies and is not regulated. Insurers have complete flexibility in pricing it.

It is this second component that is the source of most of the confusion.

Start With The IDV

The first number to look for in your renewal quote is the IDV, or insured declared value. This is the amount your insurer will pay you if your car is stolen or declared a total loss. It is calculated from the car's ex-showroom price, adjusted downward each year for depreciation. As the car ages, the IDV falls. And since the OD premium is supposed to reflect this value, the renewal premium should logically come down too.

Place your existing policy next to the renewal quote, compare the IDV and the corresponding premium, and the picture becomes clearer. Armed with quotes from multiple insurers, or from comparison websites that aggregate offerings, an informed and persistent customer is far more likely to get a better deal.

Remember that OD premium rates are not regulated. Quotes often mention a discount applied to the OD premium. This is negotiable, and you can ask for a better deal.

What Is Bundled Inside

One reason premiums do not fall even as the IDV does is that renewal quotes often include additional or different add-ons compared to your current policy. Common add-ons include nil depreciation cover or return-to-invoice cover, which restores the claim amount closer to the car's original purchase price. If you find a similar premium despite a lower IDV, ask for a quotation for the same coverage as your current policy, with a clear break-up of each add-on and its individual cost.

The TP premium also bundles in a personal accident, or PA, cover for the owner-driver, capped at a maximum of Rs 750. Insurers often offer discounts of up to 50 per cent on this. It can be waived if you already hold a PA policy of equal or higher value, either independently or for another vehicle.

Watch The Language

Confusing terminology is another trap. A recent OD quotation listed an add-on called "car damages." On inquiry, this turned out to mean damage caused by falling objects such as trees, which is already covered under a standard OD policy. Such wording creates the illusion of additional benefits where none exist.

Similarly, a tyre protection cover or roadside assistance cover cannot logically carry the same insured amount as the entire vehicle. Asking for a granular break-up of each component helps you drop covers you no longer need or add genuinely useful ones.

Cashless Or Reimbursement

One practical decision worth making at renewal is whether you want access to cashless garage networks. Premiums can be significantly lower if cashless repairs are excluded. If you are comfortable paying the workshop upfront and claiming reimbursement later, opting out of cashless cover can reduce your premium meaningfully.

Why Some Insurers Are Genuinely Cheaper

Not every low quote is a red flag. Some insurers operate on fully digital models that reduce overheads. Others benefit from scale and can work on thinner margins. Competitive pricing from a reputable insurer is possible and worth exploring.

Your car's value falls every year, and your premium can too, if you know what to ask for. Pull out last year's policy, request itemised quotes from at least two or three insurers, and compare the IDV and each add-on separately before signing off on the renewal.