How Is Car Insurance Premium Calculated?

Purchasing car insurance should be a very thoughtful process. It is important to consider various parameters while purchasing a car insurance policy. The insurance policy that you purchase should provide you with the required coverage at an affordable premium. This article will guide you through the factors that car insurance companies consider to calculate your car insurance premium. 

What Are The Factors That Determine The Cost Of The Car Insurance Premium?

The cost set by the insurance companies varies from car to car. This is mainly because every car is different and has different features along with the major differences in the age of the car and the type of policy chosen by the policyholder. In generic terms, the following are the major determinants of the cost of your car insurance policy -

• IDV of Your Car 

Your car’s IDV is calculated by subtracting the cost of depreciation from the selling price of your car. If your car is old, then it will have a lesser IDV which implies that you will be paying a lesser premium amount. 

• Cubic Capacity of Your Car

The cubic capacity or cc is the unit used to measure the size of the car’s engine. This is a feature that remains constant from the time of purchase. Cars with a higher engine capacity offer better performance which increases the risk of the car being involved in any road accidents or theft. Thus, if you have a car with a high cubic capacity, you will likely be paying a higher premium amount. The Indian Motor Tariff Act regulates and sets the rules on these tariffs. 

• The Age of The Car

Your car is prone to constant wear and tear from the time you start driving it. This wear and tear is termed depreciation and brings down the overall efficiency of the car thus reducing its value. So, older cars will have higher depreciation. Likewise, younger cars will have lesser depreciation. Thus, the premium amount for an old car will be lesser than that of a relatively younger car. 

You may also like to read:- Reasons for Rejection of Car Insurance Claims and How to Avoid Them 

How Is Your Car Insurance Premium Calculated? 

Your car insurance premium is calculated on the basis of multiple parameters. The insurance company takes into account different details of the policyholder and the car such as the age of the car, the date of registration, number of previous claims, etc. Your car insurance premium amount is basically calculated by adding the overall cost of the following -

• Personal Accident Cover

Personal accident cover is an additional cover that is compulsory according to the Indian Motor Vehicle Act. It is an essential component in a car insurance policy as it provides financial assistance to the policyholder in case of any accident to repair any damages sustained by the car or even medical bills resulting from bodily injury. The premium paid for this cover will bring up the cost of the overall car insurance policy. 

• Own Damage Cover 

This is a beneficial cover for the policyholder which offers financial damage in case of damages caused due to natural calamities, fire or any accidents.  This relies on the IDV of your car. Thus, if your car has a higher IDV, you will be paying a higher premium amount. But it will decrease as your car grows old. 

• Third-Party Cover

Third-Party Cover is important insurance coverage that is mandatory according to the Indian Motor Vehicle Act. This cover provides financial assistance to compensate third party loss in case of an accident. You can also purchase standard third-party insurance. However, it does not provide any personal protection. 

• Other Add-Ons

Insurance companies offer certain facilities in the form of additional covers which you can add to your standard insurance policy. These covers help you to get more coverage for your car. But, adding these covers will increase the overall cost of your car insurance premium.

Also Read:- When to Purchase Comprehensive Car Insurance Coverage?

Take Away

Most people agree to the price set by the insurance company for paying their car insurance premium. But, they don’t take time to understand how it works. Make sure you compare different policies before purchasing and be aware of the policy you purchase.

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.