When it comes to buying or renewing an insurance plan, the first thing that comes to mind is the premium. Most of us know the premium amount we’re paying, but few understand how it’s calculated.
This blog will break down the components of your car insurance premium in simple terms so you can make informed decisions, save money, and feel smarter along the way.
Understanding Car Insurance Premium Calculation
Your car insurance premium isn’t just a random number—it’s a calculated figure based on several factors. You can even calculate your car insurance premium using a simple formula:
Premium = Own Damage Premium – (No Claim Bonus + Discounts) + Liability Premium as Fixed by the IRDAI + Cost of Add-ons.
Let’s dive into the three main components that make up your car insurance premium:
1. Third Party Cover
In India, having third-party car insurance (TPL) is mandatory if you own a car. This cover protects you against any legal liabilities arising from damage or injuries caused to another person or their property by your insured vehicle. However, it’s important to note that TPL only covers the third party—it doesn’t cover damages to your own vehicle.
The TPL premium is determined by the car’s engine capacity and is set by the Insurance Regulatory and Development Authority of India (IRDAI). While TPL is essential, it’s wise to also consider a policy that covers damage to your own vehicle.
2. Own Damage (OD) Cover
The Own Damage (OD) cover is optional but highly recommended. This cover ensures that you are financially protected if your car is damaged due to accidents or natural disasters like earthquakes, floods, or even fires. The premium for the OD cover depends on the Insurance Declared Value (IDV) of your car—the higher the IDV, the higher the premium.
As your car ages, its IDV decreases, and so does the OD premium. The IDV is essentially the market value of your car, and it plays a significant role in your car insurance premium calculation.
3. Personal Accident Cover
A vital component of your car insurance premium is the Personal Accident Cover. This cover extends beyond just your car; it safeguards you against accidents that could result in injury or even disability. Given the high risk of road accidents, this cover is essential for comprehensive protection.
You can also increase the sum insured by including unnamed passengers in your policy. The higher the sum insured, the higher the premium for this cover.
Additional Riders
Besides the standard covers, you can enhance your car insurance policy with various add-ons or riders. These riders offer additional protection and services at a nominal cost. For instance, Engine Secure protects against engine damage caused by waterlogging, while Roadside Assistance provides help if your car breaks down in the middle of the road.
Other useful add-ons include No Claim Bonus (NCB) Protection, which allows you to make claims without losing your NCB, and Return to Invoice, which covers the difference between the car’s invoice price and its IDV. These riders can make your car insurance policy more robust and ensure you’re covered in various situations.
Factors Influencing Car Insurance Premiums
Several factors determine the premium value of your car insurance. Understanding these factors can help you choose the right policy and possibly lower your premium:
- Age of the Insured: Individuals aged 18 to 25 are considered more prone to accidents, leading to higher premiums for this age group compared to older drivers.
- Car Model and Variant: High-end cars like Audi or Mercedes attract higher premiums than more economical cars like Maruti Alto or Hyundai Santro. Similarly, SUVs have higher premiums than hatchbacks.
- Location: If you live in a metro city with high traffic density, your car insurance premium will be higher than in cities with lower traffic density.
- Fuel Type: Cars with CNG kits generally have higher premiums than petrol or diesel cars.
- Year of Manufacture: Older cars have a lower IDV, resulting in a lower premium.
- Discounts: Some professionals, such as doctors, government employees, and defence personnel, may be eligible for additional discounts on their premiums.
- No Claim Bonus (NCB): For every year you don’t make a claim, you earn an NCB, which gives you a discount on your premium. This discount can range from 10% to 50% and can be transferred to a new policy if you renew expired car insurance.
Final Word
Calculating your car insurance premium doesn’t have to be a mystery. By understanding the components and factors involved, you can make informed choices that not only ensure comprehensive coverage but also save money. Whether you’re renewing your policy or buying new car insurance, an online car insurance calculator can help you determine your premium quickly and easily.
Remember, while the premium is an important consideration, it’s equally important to ensure that you’re adequately covered. After all, the right car insurance policy can provide peace of mind, knowing that you’re protected on the road.
