How the two calculations connect
A car's insurance premium is priced as a percentage of its declared value, and that declared value is based on the vehicle's depreciated current worth, not its original purchase price. As the depreciation calculation from the companion article on this site shows, that current value shrinks every year — so a premium calculated as a percentage of it shrinks too, purely from the value going down, before any change in rate or discount.
A worked example following one vehicle over time
Take a vehicle purchased for ₹10,00,000 depreciating at 15%/year, with an insurance premium always priced at a 3% base rate and a steady 20% No-Claim Bonus. In year 1, the value is ₹8,50,000, giving an estimated premium of ₹20,400. By year 3, the value has fallen to ₹6,14,125, and the premium with it, to ₹14,739. By year 5, the value is ₹4,43,705.31 and the premium is down to ₹10,648.93 — roughly half of the year-1 premium, with the base rate and NCB percentage never having changed.
Why this matters for renewal-time expectations
A driver renewing their policy each year should expect the premium to trend downward over time on this basis alone, separate from any change in claim history or insurer pricing — seeing a lower renewal quote on an aging vehicle isn't necessarily a sign of a better deal or a mistake, it's the expected result of the vehicle's declared value declining year over year.
An important caveat about real-world IDV
This worked example uses the same general depreciation rate from the companion depreciation article purely to illustrate the connection — in practice, insurers calculate a vehicle's actual Insured Declared Value using a specific depreciation schedule set by the insurance regulator based on the vehicle's age band, which doesn't necessarily match a general market-depreciation estimate for the same vehicle. The relationship demonstrated here (falling value → falling premium) holds either way, even though the exact numbers an insurer quotes will follow their own schedule rather than this illustrative rate.