Learn All About Car Insurance Premium Calculations

The car insurance premium is the sum you are required to pay the insurance provider periodically for a car insurance policy. In return, the insurance provider guarantees to take care of the bills incurred due to any damages to your car. But how do insurance companies determine the car insurance premiums? Let’s find out.

Formula to Calculate Car Insurance Premium

Calculating car insurance premium is not very difficult. The standard formula to calculate car insurance premiums is as follows:

Car Insurance Premium= Own Damage Premium – (Discounts + No Claim Bonus) + Third-Party Liability Premium (as per IRDAI) + Add-On Premiums

Now, let’s take a look at the various factors that affect your car insurance premium.

Factors that Affect Car Insurance Premium

Your car insurance premium is computed based on various factors. Some of these are:

● Make and Model of the Car

The car insurance premium may differ for different cars based on the car manufacturing brand and the model of the car. Luxury and high-end cars may have a higher car insurance premium as compared to low-end vehicles. Similarly, a car with a higher engine cubic capacity (cc) will have a higher car insurance premium.

● Your Location

If your car is registered in a highly populated urban area or in a city, your car insurance premium may be higher. This is because the insurance provider assumes that the chances of insurance claims in such locations are higher due to heavy traffic, vandalism, etc.

● Fuel Type

The car insurance premium for a CNG car will be higher as compared to one run by petrol or diesel.  This is because CNG-run cars have a higher cost of maintenance as compared to petrol or diesel-run cars.

● Insured Declared Value (IDV)

In case of the total loss or theft of your insured car, the IDV in car insurance becomes a crucial factor that a insurance provider will consider during pay out. The IDV is determined by taking into account the manufacturer’s selling price of the car and the depreciation value of the car’s parts. While it is so valuable in car insurance,it is quite important to understand IDV in car insurance. The IDV of a car is not only directly proportional to your premium amount, but it also determines the maximum pay out an individual can get.

● Deductibles

A deductible in car insurance is the percentage of the claim amount that you (the insured) will have to pay from your own pocket. Car insurance plans with a higher deductible are offered at a lower premium, and vice versa.

● Type of Coverage

Third-party car insurance plans have a lower premium as compared to comprehensive car insurance plans due to their limited scope of coverage. Moreover, if you choose to purchase any add-on overs along with a comprehensive plan, the premium will also go up accordingly.

● No Claim Bonus (NCB)

You will be rewarded with no claim bonus rewards if you do not file any claim against your car insurance policy during the policy tenor. These rewards can then be used to get a reduction in car insurance premiums at the time of policy renewal.

● Age of the Car Owner

Insurance providers also consider the age of the car’s driver while computing the car insurance premium. They consider drivers who are aged 25 years or less as risky drivers who may be more prone to road accidents. Hence, the car insurance premium for this age group is higher.

● Discounts on ARAI Anti-theft devices

Insurance providers offer certain discounts on the car insurance premiums if the car is fitted with anti-theft devices that are approved by the ARAI (Automotive Research Association of India).

Wrapping up

In today’s times, purchasing your own car is not just a luxury but is also a necessity. However, purchasing a car is a huge expense, and hence it is essential to secure it with the right car insurance plan to stay financially protected in the event of any unfortunate accident or calamity. So, you must consider the cost of car insurance while buying a car. Keep the following factors in mind and go through various car insurance plans before choosing one that suits your needs. You can also use the online car insurance calculators to compare various car insurance plans and their premiums.