Although having car insurance in India is mandatory by law, the need for comprehensive insurance is now more important than ever. Poor road conditions, rapidly increasing traffic and unpredictable weather have made driving dangerous. A car insurance plan acts as a safety net and covers the losses arising from accidents and damage caused to your car. Whether you are a first-time insurance buyer or looking to renew your existing policy, it’s important for you to understand how car insurance premium is calculated.
A car insurance premium is calculated based on several factors associated with the risks and value of the car. The insurance premium for the same car model bought on the same date may vary greatly from person to person. Therefore, in order to know how to calculate your insurance premium, you must first understand the various factors that affect it.
Here is a look at how car insurance premium is calculated based on the following factors:
Insured Declared Value or IDV
Insured declared value (IDV) is the value of a car as estimated by the insurance company at the time of insurance application. An IDV is the maximum amount up to which a claim can be made in case of an accident / loss / damage to your car. Since a car / vehicle is a depreciating asset, the IDV of your car will decrease over time. Your car insurance premium is directly proportional to the IDV i.e. higher the IDV of your car, the higher will be its premium. However, IDV is only applicable in case of a comprehensive insurance policy.
Cubic capacity (cc)
Cubic capacity is a measurement of the engine capacity of your car. The higher the CC of your car engine, the higher will be your car insurance premium, as stipulated in the Indian Motor Tariff Act. However, cubic capacity only affects the premium of a third party liability cover.
Age of the car
The age of your car is another important factor that determines your car insurance premium. Logically, older cars should have a lower premium compared to newer ones due to low IDV. However, the calculation here is not that simple. Older cars incur higher risks due to general wear and tear, hence other factors such as safety features and the general condition of the car are also taken into account in case of older models.
The location of your vehicle registration also affects your car insurance premium. Locations are classified as ‘Insurance Zones’ based on the automobile risks specific to that region. For example, if you live in a metro city, you will have to pay a slightly higher premium as metro cities have a high rate of accidents and vandalism compared to smaller towns and rural areas.
Type of Insurance Cover
The type of insurance coverage you choose also affects your premium significantly. A comprehensive insurance will cost you more than a third party cover as it covers damage to both the parties involved in any road mishap, including your own automobile.
Now that you understand the various aspects of insurance premium calculation, you can make an informed decision while buying your car insurance policy. Buying an insurance plan with a lower premium may be easy on the pocket, but it’s also important to consider the value you are getting from your insurance policy.
Buying an insurance policy with a higher premium and better coverage makes more sense than buying a less expensive one with poor coverage.
Simply enter your car registration number and your contact details to buy or renew your car insurance policy online with Finserv MARKETS.
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