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How to Calculate Car Insurance Premium?

By Finserv MARKETS - Jan 30,2019
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How is car insurance premium calculated?

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.

Geographical Location

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.

“Finserv MARKETS, from the house of Bajaj Finserv is an exclusive online supermarket for all your personal and financial needs. Loans, Insurance, Investment and an exclusive EMI store, all under one roof – anytime, anywhere!”

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Bajaj Finserv Direct Limited ("BFDL"), erstwhile Bajaj Financial Holdings Limited is a registered corporate agent of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited under the IRDAI composite registration number CA0551 valid till 10-Apr-2021. BFDL also renders services to Bajaj Finance Limited (‘BFL’) and Bajaj Housing Finance Limited (‘BHFL’) (referred hereinafter as ‘Lending Partner’) in sourcing of customers, providing preliminary credit support activities, fulfilment services and post-acquisition customer services related to lending business. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522