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Want to know how your car insurance premium is calculated? Let’s dig into details and learn the nitty-gritty of everything that creates and impacts your premium.
You choose an insurance policy based on the quotes and pay the premiums. But, have you ever tried to figure out what the premium consists of? This guide is a complete go-through on everything related to your insurance premium. Here we go!
In Own-Damage, the premium is thus calculated on a. Insured Declared Value (IDV) b. Age of Vehicle c. Cubic Capacity of the Car’s Engine
Further in this article, we will explain how the IDV, age of the vehicle and engine’s cubic capacity impacts your premium.
The owner of the car is legally liable for any injury or damage to third party life or property because of an accident caused by them. Driving a motor vehicle without insurance in a public place is a punishable offence in terms. In case of an accident that results in fatalities for the third party, the Third Party (Liability) comes to your rescue. The compensation is fully paid by the insurer.
What does third-party insurance policy compensate?
Third party property damage that will be covered is up to 7.5 Lakh and in case of physical injuries/death it will be taken into court tribunal.
The PA cover is a relief in unfortunate and unforeseen events. This is especially when you meet with a fatal accident or are rendered disabled in whatever capacity.
Under the policy, most risks related to accidents such as burns, broken bones, disability or deaths are covered. The need of the cover is such that the law compulsorily statutes that PA cover is provided to the owner-driver.
For a premium of Rs. 100, Personal Accident Cover for owner driver gets compensation up to maximum Sum Insured of Rs. 2 Lakh in case of:
|NATURE OF INJURY||SCALE OF COMPENSATION|
|Loss of two limbs or sight of two eyes or one limb and sight of one eye.||100%|
|Loss of one limb or sight of one eye||50%|
|Permanent total disablement from injuries other than named above.||100%|
The kind of vehicle you drive will majorly decide your premium that you will have to pay.
Safer vehicle poses fewer risks for the driver.
Example: If you chose a car that is closed or covered with featured locks, there is a lower risk of theft. On the other hand, a premium car like a sports car would have a higher risk of theft along with speed driving. In short, choosing simpler cars can get you lower premium rates as compared to luxury cars.
Let’s imagine you have a car with a manual transmission from the time of purchase. Now, you are convinced that you want to go in for the automatic transmission at some point in time, you can easily do so. Or vice versa.
However, before beginning the procedure of modification, do check your comprehensive. Look out for add-on policy plans to know for sure if this transformation will be covered.
Car modifications do have an impact on your premium. Check with your insurance company as to which kind of modifications can affect your quotes.
Example: You might have installed a GPS device in your car or a music system. Its cost was not included in the showroom price of the car and it can increase the value of your car. Naturally, the premium amount will also increase for installing such fittings.
Some may prefer the manner that diesel delivers its sustained performance over a period. Some may also take to the way the petrol variant offers more fuel economy.
The type of fuel you use and how much mileage it offers also affects the premium.
The choice should ultimately be your own.
You may opt for
While premiums are fixed by the IRDA, insurers are free to charge the premium for a comprehensive policy as per their underwriting norms.
If you think that higher level of cover will cost you more premium, that’s not always true. The price you pay for every cover is worth checking, as some drivers feel they can get more out of less.
The premium for third party plans are fixed by IRDA taking into consideration the engine capacity of your car.
Now what’s cubic capacity?
The total power produced by your car engine is measured in terms of Cubic Capacity. Remember that the engine size influences your premium particularly the Third Party Insurance Cover.
These rates are revised each year by IRDA. From 1st April, 2016, the third-party insurance rates are:
|CONDITION RELATING TO ENGINE CAPACITY||APPLICABLE PREMIUM RATE|
|Not exceeding 1000cc||Rs. 2,055|
|Above 1000cc but lower than 1500cc||Rs. 2,237|
|Exceeding 1500cc||Rs. 6,164|
The sum insured under an OD car insurance policy reflects the value of the vehicle. This is what we call the car’s Insured Declared Value or IDV.
IDV is the value of the car that is determined based on the manufacturer’s present value and depreciation based on the vehicle’s age. Remember that greater the IDV, higher the premium and vice versa. You may think that decreasing the value of your IDV will give you lower premiums.
But, beware! Because with that you get a lower coverage than required. In case you make a claim and if the cost of damages are more than the IDV you receive, then you have to pay the rest from your pocket.
Getting an IDV that is close to the market value of your car is always the best bet. As your car grows older, the IDV decreases. Here is a schedule of depreciation for arriving at a car's IDV.
|Age of Vehicle||% of Depreciation for calculating IDV|
|Up to 6 Months||5%|
|6 Months to 1 Year||15%|
|1 Year to 2 Years||20%|
|2 Years to 3 Years||30%|
|3 Years to 4 Years||40%|
|4 Years to 5 Years||50%|
The IDV of old vehicles (that is, of above five years of age) is calculated by mutual agreement between insurer and the insured. Instead of depreciation, IDV is then arrived at by assessment of the vehicle’s condition. It’s carried out by the dealers or the insurance surveyors.
Don’t make a single claim and you are entitled to receive the No Claim Bonus or NCB discount at the time of renewal. You receive this as a reward for driving carefully and practicing road safety. Here is a table showing how NCB is calculated across the motor insurance industry on your insurance premium.
|Claim Free Year||Bonus (%)|
If you are confident of your driving skills, then choose a higher Voluntary Deductible amount. The deductible is an amount you need to pay before the insurer contributes the reimbursement of the claim.
This amount reduces your premium typically between Rs. 1,500 – Rs. 15,000 since the insurer is not going to pay this back to you. Your record may earn you a suitable discount on the deductible charged.
Make sure you choose a sensible Voluntary Deductible amount. At the time of claim, you should be able to pay it from your pocket.
Some insurance companies also provide concessions. This is if you have a valid membership of a registered automobile agency. Membership of the Automobile Association of India, which is powered by IRDAI, secures you a concession on OD premium.
Automative Research Association of India (ARAI) approved anti-theft devices are also recommended. You get 2.5% discount on premium by installing them!
Add-ons work as a security blanket in preventing you from burning a hole in your pocket at the time of claim. It hikes up the premium a little. But if used smartly, then it’s totally worth it.
Zero Depreciation add-on cover plan comes with a cost. However, it provides adequate coverage for eventualities.
The passenger cover is another add-on cover in which you may increase the sum insured and also provide for other passengers. Similarly, there are few other essential add-on covers that you can choose from.
If you are living in an area or work in a zone that is prone to vandalism, you are likely to get higher premiums. Simply put, parking your car in a dangerous zone means higher chances of thefts or damage. Comparatively, individuals living in safer areas or residential neighbourhoods would benefit with lower premiums.
Delhi falls in the Zone A list of cities as prescribed by IRDA. This entails a higher amount of premium than that charged in Zone B cities. So don’t feel cheated if your friend living in Ranchi or Amritsar is paying a lower premium than you for the same car. Why does the area of car registration matters:
In some places, the premium is higher because of increased volume of traffic. This increases the chances of accidents while other cities fall in the Zone B category where premiums are lower.
It’s true. Demographic factors do influence your car insurance calculation.
A middle-aged driver would be less prone to minor accidents due to better vision and agile motor skills. Likewise, a young driver could be prone to rash driving. On the other hand, an older driver may have more accidents due to poor eyesight or slower motor skills.
Research shows that married people tend to have fewer accidents as compared to single individuals. In particular, men get lower premium rates after marriage.
Statistics reveal that teenage boys are more prone to accidents as compared to girls. On the other hand, middle-aged and older women have a higher accident record.
In order to calculate your exact car insurance premium online, you need to provide specific details about your car, whether new or old.
What sort of details do these include?
In the case of a used car, you would also need:
Since the premium calculator gets you the best deal based on your requirements, it is best to be completely accurate during the calculation process!
It only makes sense to do your homework before buying something as crucial as insurance online. What are the benefits of the same? Here are a few:
Right from its components and factors affecting it, we believe you have understood all about car insurance premiums.
So get ready to calculate it with this visual cheat sheet to calculating car insurance.
How do car companies calculate premium?
Insurance premiums are calculated on mainly the below factors:
Do you know what makes up a typical car insurance premium?
There are three main components that form the basis of a regular comprehensive car insurance policy premium. They are Third party (Liability) Cover, Own Damage (OD) Cover, and Personal Accident Cover.
Does motor transmission type have an impact on car insurance premiums?
Yes, motor transmission type does have an impact on car insurance premium. For eg. If you have a car with a manual transmission from the time of purchase but now want to go in for an automatic transmission, you can certainly do so. But, do check your comprehensive and add-on policy plans to ensure if the transformation will be covered or not. Modifying your car’s transmission would be an out-of-pocket expense and would thus impact on the premium.
How your cars fuel type impacts your insurance premium?
Diesel cars has higher insurance premium as compared to petrol cars. This is because diesel cars has marginally higher risk cover than the petrol ones. Additionally, you will also have to pay a higher car insurance premium for CNG fitted cars as compared to diesel/petrol cars.
Does the car’s engine capacity has a striking impact on your car third party insurance premium?
The total power produced by your car engine is measured in terms of cubic capacity and the engine size influences your car insurance premium particularly the Third Party Insurance Cover. Whether the car is old or new, the premium amount decided for the vehicle is the same for both as premium depends on the engine size and not the age of the car in case of Third Party Cover.
Is car insurance premium mostly affected by its age, second to IDV?
The age of the car is not only used to determine the Insured declared value (IDV) but also the premium you have to pay. Factor’s like car’s years of use, depreciation, or reduction in valuation, are applied to the ex-showroom price to calculate the IDV. Typically, the premium would decrease with the increasing age of the vehicle.
What is the contribution of Third Party and Own Damage factor in car insurance premium calculation?
With third party liability you pay lower premiums but are only covered for property damage/ personal injuries to third parties. The coverage here includes any kind of liability in case of damage to property or injury/death.
Own damage or Comprehensive insurance is a policy where you pay higher premiums and get optimal or complete coverage for your car and yourself.