Have you ever wondered how car insurance premium is calculated? If you are planning to buy a car or already bought a car then you must take car insurance as in India every vehicle that runs on the road must have insurance. But the cost of car insurance varies due to many factors. So, to know how car insurance premium is calculated, you must know in details about these factors of car insurance.
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However, before you know how car insurance premium is calculated, you must know what car insurance premium is. The car insurance premium is basically the money funded to the insurance company for decreasing risks related to possessing your car.
We know that car insurance has many benefits, but we do not know its cost and how car insurance premium is calculated? So, today in this article below I am going to discuss how car insurance premium is calculated.
How Car Insurance Premium is Calculated?
The premium of car insurance policy is calculated on the basis of its type. There’re mainly 2 kinds of car insurance policies in India
- Third Party Car Insurance Policy and
- Comprehensive Car Insurance Policy
The third party car insurance policy covers the damages of a third party that has experienced injuries because of a collision with the insured car. While the comprehensive car insurance policy covers injuries to the insured car and also the third party (liability).
The car insurance premium is calculated based on the Insured Declared Value i.e. IDV) of a car, No Claim Bonus i.e. NCB and offer or discount included in that car insurance.
However, these three factors are basically used for calculation of the comprehensive car insurance policy and these aren’t applicable for the third party or liability car insurance policy.
So, let’s now check how car insurance premium is calculated and what the factors that affect your car insurance premium:
Insured declared value or IDV:
The Insured declared value i.e. IDV is basically the value of your vehicle estimated by your insurance provider when you apply for the car insurance policy.
This Insured declared value is the highest sum up to which you can make a Claim for theft or accident of your car. However, you need to consider one thing that the Insured Declared Value (IDV) be likely to change, & reduces with time, with the depreciation.
Cubic capacity or cc:
The Cubic capacity (cc) is the size of your car engine. As the cubic capacity (cc) doesn’t change over time unlike the Insured Declared Value (IDV), it affects your premium price of the third party or liability car insurance cover & not that for the comprehensive car insurance policy.
The higher your car’s cubic capacity (cc) is the higher your car insurance premium will be, as specified in the Motor Tariff Act of India.
No Claim Bonus or NCB:
To compensate the policyholder for being a capable driver, insurance agencies have invented the idea of No Claim Bonus (NCB). You’re entitled to a No Claim Bonus (NCB) rebate on the off chance that you have not made a case the earlier year. On the off chance that you have a No Claim Bonus (NCB) segment in your insurance plan, you can set aside to half on the Own Damage (OD) premium.
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Age of the Car
Age of your car is another significant factor that helps to determine the premium of the car insurance. As an issue of rationale, the more established the vehicle, the higher the devaluation. This is because the older the car is, it tends to invite higher risks, and thus, it would include higher premiums for the car insurance policy.
Discounts or Offers:
There’re some added discounts or offers that the insurance company offers under the Own Damage (OD) premium. A number of these discounts or offers are mentioned right below:
- Receiving the membership in the Automobile Association of India i.e. AAI is a good way to get a discount or offer in your car insurance premium
- Installation of a device for anti-theft such as an alarm for the car can help you to get an offer or discount on the premium of your car insurance policy
- The car insurance company provides profession-based offers or discounts to government employees, defense personnel, and doctors.
Fuel Type of the Car:
The fuel type of the car plays a vital role in deciding the premium of your car insurance policy. For example:
A Compressed Natural Gas (CNG) fitted vehicle will be expensive than petrol and diesel cars
A diesel car will invite a pricier insurance premium for your car than a petrol car. This is because it’s more costly to repair a diesel car after an accident, as compared to the petrol car.
Model of the car
High-end brands of cars like Audi, Lamborghini, Bugatti, and Porsche are covered at a pricier premium as compared to a more affordable car such as Maruti Alto, Renault Kwid and Hyundai Santro.