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How Do Car Insurance Companies Calculate Premium?

Ever wondered how companies calculate their car insurance? What are the factors insurer considers before quoting the premium?

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When you purchase the car insurance, it is prudent to know exactly how your insurance premiums are calculated to understand the various factors that derive the figures.

Car insurance policies are like securities plan; it is just another way of conveying that you will be compensated for an amount up to financial loss your car has suffered.

Insurance premiums are calculated on mainly the following factors

Insured Declaration Value (IDV) of your car

Insured declared value, or IDV, is the value of your car that the insurance company derives to establish its worth at the time of buying the car insurance cover. To be more precise, it is mainly the value for which you pay the premium, which is also known as the sum insured.

For Example: If a car with an IDV of 5 lakh suffers total loss in an accident, then the total claimable amount will not exceed 5 lakh. In other terms, one cannot claim for more than the IDV and hence it is advised to check it during the time of policy purchase.

Also, if you have added accessories in your car like the CNG kit, advanced gadgets, then you can get the same valued and added to the total IDV for in-depth cover.

Please note that the IDV is calculated for only comprehensive policy and not for Third Party cover.

Cubic Capacity:

The total volume of all the cylinders in a car's engine added together is expressed in cubic centimetres (cc) or, more frequently, in litres. So, an engine with a capacity of 1499cc will be referred to as a 1.5-litre unit.

The cubic capacity of your car is mentioned in your car registration certificate (RC). The premium calculation is done as per below:

  • Cars not exceeding 1000 CC
  • Cars exceeding 1000 cc but not exceeding 1500cc
  • Cars exceeding 1500 CC

Incidentally, the cubic capacity of the car also has a direct impact on the Third Party premium, too. So you get the drift….the higher the cubic capacity of your car, the more is the premium.

Manufacturing Year

The age of your car can give you a huge advantage when it comes to insurer calculating your premium. Typically, the age bracket is as below:

  • Less than 5 yrs old
  • More than 5 yrs but less than 7 yrs
  • More than 7 yrs

Insurance companies normally spike up their premium rates a little higher when the car is older. This is because the older the car, the risk of car break down increases. Hence, the older the car, higher is the premium.

Geographical Locations

The whole of India is broadly divided into following Geographical zones depending upon the location of the Office of Registration of the vehicle.

  • Zone A: Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, Mumbai, New Delhi and Pune.
  • Zone B: Rest of India

The insurance premium for all those vehicles in Zone A would be slightly higher compared to those in Zone B. This is because the probability of claims is higher in metros than the other locations.

No Claim Bonus

NCB is an important variable that affects the insurance premium. It is earned if no claim is made during the previous year of insurance. One can earn the NCB up to 50% accumulated over the years. NCB can be earned only on the Own Damage premium. This is how the NCB will be applicable:

How is No Claim Bonus accumulated over the years

Add-on Features

While the above are the main deciding factors while calculating the car insurance premiums, the final quote is generated basis the individual requirements.

Add-on features like Personal Accident Cover, Loss of Belonging Cover, Engine Protection Cover, Invoice Protection Cover, etc. can be separately added to the policy coverage at added costs. It’s always wise to check the options before making the final payment.

Coverfox’s Final Word

While we understand that the premiums are broadly decided by the car insurance companies in congruence with the IRDA guidelines, Coverfox can guide you choose the right options that might save some bucks for you.

Our expert advisors will evaluate your requirements thoroughly before suggesting any options. Call us for that hassle-free experience.

Get lowest quotes for Car Insurance

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Aniket Thakker
Written by Aniket Thakker
He lives off TV shows, movies, junk food, comics and sarcasm. When he is not working as a freelance imaginary friend to other beings like him, he works as VP of Marketing at Coverfox.

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