Why does car insurance premium varies on my geographical location? Two people with the same car with same miles end up paying different premium in different cities. How fair is this?

Why does car insurance premium varies on my geographical location? Two people with the same car with same miles end up paying different premium in different cities. How fair is this?

India is divided into 2 zones namely zone A and zone B depending on the risk faced by motorists. Zone A cities have a higher premium than cities in Zone B. The reason is that cities in zone A are more likely to have a say in your cars on road condition. Zone A includes Mumbai, New Delhi, Bangalore, Chennai, Kolkata Ahmedabad, Hyderabad and Pune while the rest of India comes under Zone B. The geographical location is not the only criteria and there is not such a big difference between Zone A and Zone B that makes premiums look or appear unfair.

What is IDV for car insurance?

If you ever have a total loss in an accident, IDV is the total compensation the insurance company will offer you calculated as per the cost of your car at the time of taking insurance. Insured declared value or IDV is the maximum amount that you can claim under a motor insurance policy. A new car just out of a showroom will therefore have a higher IDV than someone having the same car model but which has been on the road for say 6 months.

Hi Mahesh,

Geographical location is just one of the factors that affects premium from city to city. India is generally divided into two zones – Zone A and Zone B. These zones indicate the level of risk that vehicle owners face. For example, Zone A will pose a greater risk to your vehicle due to road conditions etc than Zone B, hence the premium will be higher in these areas. Metros like Bangalore, Delhi, Chennai, Mumbai etc all fall under Zone A.

Cheers,
Team BB

Hi Preetha,

You must know that the value of your insurance policy is based on the Insured Declared Value (IDV). Insured Declared Value is understood as the maximum sum that the insurance provider agrees to pay you in case of total damage to your vehicle. For a new car, the Insured Declared Value is calculated on the showroom’s listed price.

The Insured Declared Value of your vehicle does not remain constant. It changes every year with every renewal of your insurance policy. Now, why does the Insured Declared Value decrease?
On renewal of your Car Insurance policy after one year, the Insured Declared Value will decrease due to the rate of depreciation that is applicable on vehicles. The depreciation schedule usually starts from 6 months. Initially, the depreciation rate will be 5%, then it will be 15% when the car has been used for a year. From the second year, the depreciation rate will be 20% and will go up by 10% every year.

Looking for Car Insurance? Click here.

Cheers,
BB Expert