How Do you Calculate a Car Insurance Premium?

04 Feb 2019

Buying a third-party car insurance premium is mandatory in India. There are a lot of terms and conditions mentioned in the fine print of insurance policy documents, many of which you may not fully understand. Not many policyholders are aware of the way car insurance premium is arrived at. Therefore, it is important to know the different components of the car insurance premium and how it has been arrived at.

There are four factors on which you calculate a car insurance premium. These include the Insured Declared Value of the vehicle, cubic capacity of the engine, the age and type of the vehicle and the geographical zone. These four factors are explained below:

1. Insured Declared Value

The Insured declared value of IDV is the value of the car arrived based on the depreciation slab mentioned in India Motor Tariff. When you submit your proposal for car insurance, the company will estimate the value of the vehicle, and this is the maximum amount up to which a claim can be made in case of theft or Total Loss of the vehicle. It is essential to understand that the IDV will change over some time due to depreciation and it is only applicable in case of a Comprehensive insurance policy cover (However, the IDV will not change during the tenure of the policy). If you have recently purchased a car and driven out of the showroom, its value will be more than a car which is three years old. Hence, the IDV will decrease every year. IDV is not applicable for a third-party insurance cover.

2. Cubic Capacity

The cubic capacity or CC is the measure of the size of the engine of your vehicle. It does not change with time. Hence it is one of the parameters for computation of premium in both Own Damage & Third Party Premiums. If your vehicle has a higher capacity, the premium amount will be high. The premium amount will vary based on Cubic Capacity of the Car as per the guidelines issues by the Indian Motor Tariff.

3. Age of the car

The age of a car is an important factor that plays a crucial role in the calculation of the car premium. Premium Amount will vary based on age of the vehicle.

4. Geographical zone

The town or city where the car is registered will have an impact on the premium amount. India is divided into two zones based on the risks that motor vehicles are exposed to. Zone A includes cities like Mumbai, Delhi, Pune, Bengaluru, Chennai, Ahmedabad, Hyderabad and Kolkata. Remaining cities fall into Zone B, and the premium amount for vehicles registered under Zone A will be higher than that of those in Zone B.

Disclaimer: For more details on risk factors, terms & conditions please read sales brochure carefully before concluding a sale. *The discount amount will vary subject to vehicle specification and place of registration.