How Does the Age of Car Affect Car Insurance Premiums?

Before extending auto insurance, an insurer takes into account the age of a car as it helps decide on insurance premiums receivable. This analysis even helps decide what insurance coverage will be appropriate for a car owner. The age of a car affects its insurance premium in a way that- the higher the age of a car, the lower its value and simultaneously a lower premium.

Keep reading to learn how the age of a car affects car insurance premiums.

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How Does the Car Age Influence Insurance Premiums?

The age of a car is a factor of great significance during the renewal of an auto insurance policy. Age is used to calculate the Insured Declared Value (IDV) of the vehicle and even the premium. This calculation of IDV bases itself on the number of years a car is used and its price depreciation in its ex-showroom.

How Is the Age of Car Calculated?

The age of a car is the sum of the number of years included between both the calendar year and model year. For example, a vehicle with the model year 2008 will have a vehicle age of 4 years in the 2011 calendar year (2008+2009+2010+2011).

How Is Car Insurance Premium Calculated Based on Its Age?

When you seek a renewal of your car insurance policy, the car's age is used to calculate the IDV of your car. IDV for car insurance is calculated based on the selling price decided by the manufacturer and the depreciation of the manufacturer's vehicle. The latter is deducted from the former.

The formula to calculate IDV is-

Insured declared value= (company’s listed price-the depreciation value) + (cost of vehicle accessories – depreciation value of these parts)

How to Calculate the Depreciation of a Car?

Depreciation of a car is calculated based on the following table of rates set by the Insurance Regulatory and Development Authority of India (IRDAI):

Age of Car	% Depreciation for Calculating IDV
6 months and less	5%
6 months to 1 year	15%
1 to 2 years	20%
2 to 3 years	30%
3 to 4 years	40%
4 to 5 years	50%

IDV of a vehicle which is beyond 5 years of age is determined through a mutual agreement between the insured and insurer. Similarly, the IDV of an old car is calculated based on surveys done by car dealers and the like, analysing the vehicle's condition.

The question is- how does the age of a car affect car insurance premiums? Involves important information such as – no matter what age your vehicle is, you would require a minimum auto insurance coverage. Moreover, coverages which are optional for both used and new vehicles, may aid in your potential financial trouble given accidents occur.