How Car Insurance Premiums are Calculated – Complete Guide

Negosentro.com | How Car Insurance Premiums are Calculated – Complete Guide | If you are a car owner, then car insurance would have been a term that you might have heard. You would be having a car insurance policy on your own and would be renewing it every year. But have you wondered how the premium amount for these policies is calculated? Why it varies from one company to another and from year to year? 

Here is a complete guide on how insurance companies calculate car insurance premiums.

A car insurance calculator factors in the following points while calculating the premium for your car.

Insured Declared Value 

IDV is the amount for which your car is insured. In the event of an accident when your car is completely damaged, IDV will the amount compensated to you by the insurance company. This IDV value is directly proportional to the current market value of the car.  Thus IDV decreases with each passing year since the market value of your vehicle too decreases. 

The market value of your car when you have just bought it will be higher than after you have used it for two or three years.

For a new car, IDV is calculated as per the ex-showroom price of the car. For a car that has been used for a few years and if you are renewing the insurance policy for that car, then the IDV will be adjusted as per the wear and tear on the car.

As the IDV value of your car decreases, the premium al

This is only applicable for a comprehensive insurance policy. A third-party insurance policy does not have these factors figured in. It is a fixed amount as prescribed by the IRDA. 

Read more : Cool Benefits of Comprehensive Car Insurance

CC of the vehicle

For a third-party insurance policy, it is the Cubic Capacity of the vehicle that matters. Here the age of the car is not essential as it is the case with a comprehensive insurance policy.  The premium rates are fixed as follows :

Thus higher the CC of your car, higher will be the premium. However, these are not the final premium rates you have to pay. There will be additional charges imposed on these minimum rates. But these additional rates would be the same for every car. Only the base rate is depended on the CC of your car.

Read more : Auto Insurance: Cutting costs, not corners

Geographical zones where you ride the car

Depending on how much risk your car will be subjected to while driving on a particular area, India is divided into Zone A, and Zone B. Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, Mumbai, New Delhi, and Pune fall in the Zone A. All other cities fall under Zone B.

Vehicles in Zone A are more prone to accidents and theft due to dense population. Cars registered in Zone A will have more premium than those in Zone B.

Read more: What Is Not Covered By Your Motor Insurance Policy?

Depreciation costs on your vehicle 

With passing years, the value of your car decreases. Because of years of usage, your car will be subjected to wear and tear. This causes a depreciation in the value of your car. As such, there will also be a decrement in the IDV value and premium you have to pay. 

With each passing year, a 5% depreciation will be imposed on your car for the first 3 years, which increases to 10% in the next 2 years and up to 20 % in the subsequent years. For a car that is older than 5-10 years, the insurance company and the policyholder will come into a mutual agreement regarding the value of the car.

Extra add-ons 

You can extend the scope of coverage of your comprehensive insurance policy by buying in extra add-ons. Common add-ons are Zero Depreciation Cover to waiver the deprecations costs on your vehicle; Return to Invoice cover to get the full invoice amount when your car is completely damaged; Engine and Gearbox protection cover, etc. These add-ons come at an extra cost. So if you opt for them, your premium costs will also increase.

Personal Accident Cover

It is mandatory to have a personal accident cover. You can either buy a standalone P.A cover or buy one along with the insurance policy. Hence if you are opting for the P.A cover as well when you buy your insurance policy, the total cost will increase.

Time of renewal

When you renew your insurance policy also plays an important role in the premium of the policy. If you renew the policy before the expiry date you can keep enjoying the same premium amount (minus the depreciation costs) and the NCB bonus. But if you do not renew on time, then your policy will expire. You will lose your NCB bonus. When you renew the policy next time, your insurer can bump up the premium due to the breakage in the policy tenure period. Thus renew your policy every year on time.