Why Premium Differs from Company to Company?

While all insurers claim the best benefits at the lowest premium amounts, ever wondered why the premium differs from one insurance company to another? The markets are highly competitive, and one would expect similar premiums for similar features, but that’s not the case. To understand this difference, it is important to look at how insurers calculate the premium. Today, we will try to highlight these factors and how you can use this knowledge to your benefit.

As a general rule of the insurance industry, you need to understand that an insurer offers to reimburse costs by charging a nominal premium amount. Hence, the company banks on the fact that most policyholders will not file a claim. They gather data from you specific to the kind of insurance you seek and try to determine the possibility of you filing a claim. If the company finds you safer, then it will charge you a lower premium and vice versa. Since each company calculates differently, the premiums vary. Let’s look at the primary factors that an insurance company considers for deciding the premium for a car insurance policy.

The basic factors considered by insurers are as follows:

  • Insured Declared Value (IDV)
  • Age
  • Location
  • Gender
  • Married/unmarried
  • Driving experience (in years)
  • Driving history
  • History of claims
  • Type of vehicle
  • Vehicle use
  • Add-ons and deductibles

Each factor is assigned a specific weightage to each factor which can vary from one insurer to another.

Insured Declared Value (IDV)

The Insured Declared Value (IDV) is the maximum claim value or sum assured that the insurance company would pay to the insured in case the vehicle is stolen or damaged beyond repair. It is calculated based on the existing market value of the vehicle. As with the market value, the IDV depreciates with time. Also, the premium is directly proportional to the IDV. While the market value remains the same across the insurers, some companies may consider varying levels of wear and tear while calculating the IDV. This may lead to minor discrepancies in the final IDV calculated by different insurers, thereby changing the premiums as well.


Typically, insurance companies consider younger drivers to be high-risk individuals. Hence, most insurers charge higher rates to individuals below 25 years of age. Also, elderly drivers are also considered high-risk by most insurers leading to higher premium rates.


Your location is one of the primary factors used by the insurers to determine the premium. Most companies charge a higher premium to individuals residing in urban or highly populated areas since insurance claims are more prevalent there. Also, they can determine the possibility of your car getting stolen or vandalized based on your location.


Some insurers can have different rates based on gender if they have identified a trend in the past. Typically, young males are considered to be more prone to accidents than young females causing a difference in premium.

Marital Status

Married couples tend to take fewer risks while driving as compared to singles. Hence, some insurers offer discounted rates to a married individual.

Driving experience

This is a no-brainer. An inexperienced driver has a higher probability of getting into an accident or a mishap as compared to an experienced driver. Hence, if you have never driven a car earlier, the premium would be higher.

Driving history

Some insurance companies also check your driving history to ascertain your behaviour on the road. If you have a clean record, then you can expect better rates from the company.

History of claims

An insurance company is primarily concerned with the number of claims you can raise within a policy period. Hence, some insurers look at your previous claim record with them and/or other car insurers to assess your history. Needless to say, a lesser number of claims would imply a lower premium amount.

Type of vehicle

The type of vehicle plays an important role in determining the premium amount. Insurance companies look at their records to assess if a particular type of vehicle has been in more accidents and determine the premium accordingly. They also look at the price of the vehicle, the cost of repairs, and the overall safety of the vehicle. Luxury cars have a higher premium than budget cars.

Vehicle use

If you use your car daily and drive through high-traffic roads, then the insurer will charge a higher premium as compared to someone who only takes the car out once or twice a week. The higher the use, the higher the possibility of a mishap and hence, higher the premium.

Add-ons and deductibles

While buying a policy, you might choose some add-ons and agree on a certain voluntary deductible that can impact your premium amount. Also, different insurers can charge a different amount for similar add-on covers based on their prior experience.

Hence, there are several factors that an insurance company considers before quoting the premium. Each company assigns different weightage to each factor, making every quote unique. Therefore, before buying a car insurance policy, ensure that you visit the insurer’s website and use the car insurance premium calculator to get an idea about your annual premium amount. Compare various insurers and find the plan that offers the most comprehensive coverage at the lowest premium.

Summing Up

As a car owner looking to buy an insurance policy, you need to understand these factors as they can help you get the best rate. Remember, research well and compare plans before finalizing. Opt for reliable and established companies like Tata AIG that offer not only attractive coverage options but also good claim settlement ratios. Also, choose the add-ons and deductibles carefully as they can directly impact the premium amount. Choose wisely.

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