How is Car Insurance Premium Calculated?

car insurance

In today’s time owning a car has not only become a symbol of status, but it has also become an essential of our daily living. Buying a car is a milestone for everyone. After that the biggest confusion comes while buying car insurance before that every person has one question in mind what will be the average car insurance cost for me? No one can predict anything, unexpected accidents and minor mishaps can ever happen to anyone, the insurance is a safeguard at these times. In India car insurance policy is mandatory. It is good because this law keeps you and your vehicle safely away. 

What does a car insurance calculator mean?

Nowadays you can calculate premium anytime online. It is a tool provided by nearly all insurance companies. You can go to any insurance companies official website and check the premium. This makes the policyholder very easy to understand and get a quote of the premium he needs to pay for his insurance. It is very simple, open the website and fill in some details like manufacturer name, car model number, the year the car was manufactured and the details of the policyholder like name, age, etc and there you have results. 

Let us understand how is the premium calculated

There is a very simple formula to calculate the premium of car insurance, the premium is calculated by 

Premium = own damage premium  – (no bonus plus discounts) + the IRDAI fixed liability premium + cost of add-ons.

The example of calculation is specified below

Year of manufacture-2012 –policy with NCB

Ex Showroom price – 4,16,000 /-

Depreciatiom percentage – 20% which is 83,000/-

Insurance declared value i.e. IDV = 3,32,800/-

Own damage Premium = 1.97% = 6556/-

NCB discounts = 20% of Own damage premium = 1311/-

Total od premium = 5425/- (own damage premium – NCB discounts)

Personal accident cover = 100/-

Legal liability paid to driver = 50/-

Compulsory third party cover = 1,110/-

Net Premium = 6505/- (Total OD premium + Personal accident Cover + legal liability 

paid to driver + compulsory third party cover)

Gst = 1171 (18%)

Total premium = 7676/- (Net Premium + gst)

What factors affect the price of car insurance

  • Insured Declared Value
  • Type and manufacturing date of the vehicle
  • The cubic capacity of the engine
  • Geographical zone
  • Age and gender of the owner
  • Fuel type used by the car
  • Owners profession
  • Voluntary deductible
  • No Claim Bonus
  • Anti-theft device

On what factors is the policy premium calculated

Own damage premium and liability premium, the package policy depends on these two. The insurer fixes the liability premium, it is the minimum premium to be paid, it is fixed by IRDAI. The engine and the cubic capacity are the factors that decide the liability premium.

As per IRDAI, the third-party liability premium is as written below

Engine capacity less than 1000 cc – 1850/- premium amount

Engine capacity between 1000 cc to 1500 cc – 2863/- premium amount

Engine capacity more than 1500 cc – 7890/- premium amount

About Shailendra Kumar

Shailendra Kumar is an experienced Financial Consultant and Tech Reviewer who has 6+ years of experience in the field of finance, business, and technology. He is very passionate to write about Finance, Business, Technology, Gadgets, Shopping, Fashion, Lifestyle, etc.

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