How is Car Insurance Premium Calculated

New Delhi: Car ownership is a status symbol and a matter of convenience but ensuring the car's safety with car insurance is legally mandated in India. Indian law states that every vehicle owner needs to have third-party insurance. However, apart from fulfilling legal requirements, car insurance gives protection financially in case of accidents, theft, and damages. One of the most important elements of car insurance is premium, and this changes according to a number of factors. This article is a complete step-by-step guide on how to calculate your car insurance premium, influencing factors, and how to save money.

A car insurance premium is the predetermined sum paid by policyholders to an insurance provider in return for protection against monetary liabilities in case of accidents, theft, or damages. The premium is based on various factors, including the model of the vehicle, age, geographical location, and the policy framework of the insurer.

Insurance companies provide an online premium calculator for car insurance, enabling the policyholders to ascertain the premium to be paid before acquiring the policy. Users can use it to compare insurance policies and select the optimum cover in line with their requirements.

Details necessary for utilizing a car insurance premium calculator are:

- Car details (variant, make, model, fuel type, etc.)

- Registration date

- Policy commencement date

- Cover details

- Past claim history (in case of used vehicles)

After entering above-mentioned information, users are able to get an instant estimate of their car insurance premium.

For the buyer of a used vehicle, the premium calculation is a bit different. The insurer takes into account the following information:

- Registration number – It shows the vehicle's history.

- Car type – Hatchback, sedan, SUV, etc.

- Change in ownership – If it is applicable, as it affects the premium.

- Fuel type – Petrol, diesel, CNG, or electric.

- Previous claims history – No Claim Bonus (NCB) and history of previous claims influence the price.

When a new car is purchased, these details are required:

- Vehicle manufacturer's name – Fixes spare part prices and repair rates.

- State of registration – Certain states have a higher insurance premium due to road conditions and accident rates.

- Year of manufacture – The older the car, the less expensive the premium.

- Model of the car and variant – Luxury car premiums are more expensive.

- Details of the policyholder – Driving habits, age, and occupation can affect the premiums.

An easy formula for car insurance premium is:

Premium = Own Damage Premium – (No Claim Bonus + Discounts) + Liability Premium (as determined by IRDAI) + Cost of Add-ons

The premium value is based on different factors, which we will elaborate below in detail.

1. Age of the Insured

Drivers between the ages of 18 and 25 are high-risk because they are inexperienced and have a greater chance of being involved in accidents. Therefore, insurance providers quote a higher premium for them. Older and experienced drivers tend to receive lower premiums.

2. Car Model and Variant

Luxury cars like Mercedes, BMW, and Audi have a higher insurance premium than budget cars like Alto, Santro, or Swift. Further, SUVs and high-performance vehicles tend to have pricier premiums than hatchbacks or family sedans.

3. Location of Insurance

Car insurance premium depends on where the vehicle is registered. Cars registered in metro cities like Delhi, Mumbai, and Bengaluru charge more premium as there is more traffic congestion, accident risk, and crime rates. Cars registered in small towns or rural areas typically have a lower insurance premium.

4. Fuel Type

CNG and electric vehicles cost more to insure than petrol or diesel cars. This is because there are added risk factors in gas kits and battery parts.

5. Year of Manufacture

Older cars have a lower Insured Declared Value (IDV), so their insurance premium is also lower. As their market value declines with age, the insurer charges a lower premium than for new cars.

6. Discounts and Professional Benefits

Some professionals like doctors, government officials, and defense personnel qualify for a discount on car insurance premiums. If you belong to one of these groups, you might be able to lower your insurance premium.

7. No Claim Bonus (NCB)

NCB is an incentive provided to policyholders that make no claims during a policy year. The discount is as low as 10% in the first claim-free year and goes up to 50% for five years of consecutive claim-free years. The NCB can also be carried forward when you change the insurer or purchase a new car.

8. Type of Insurance Coverage

An overall insurance policy covering both third-party and own damages costs more than a third-party liability-only cover. Yet it offers full coverage, which makes it a worthy investment.

If you want to bring down your car insurance premium, try the following:

1. Compare Policies Online – Compare premium costs for different insurers using an online car insurance calculator and select the best rate.

2. Choose a Higher Voluntary Deductible – The higher the deductible (the price you pay out of pocket before insurance intervenes), the lower your premium.

3. Don't Go for Unnecessary Add-ons – Although add-ons such as roadside assistance and zero depreciation cover are useful, they drive up your premium.

4. Keep a Good Driving Record – A claims-free driving record reduces the premium in the long run.

5. Avail NCB Benefits – Make sure that your no-claim bonus is utilized at the time of renewal or policy transfer.

6. Fit Anti-Theft Devices – Insurance providers give discounts on cars fitted with safety devices such as GPS tracking and anti-theft alarms.

7. Renew Policies on Time – Do not allow policy lapses by renewing your insurance in time to avoid higher renewal premiums.

Not only is car insurance a legal requirement, but also a financial buffer for car owners. Knowing what goes into determining premiums and which factors influence premiums can assist you in making rational choices. You can efficiently regulate and minimise the cost of car insurance by using online premium calculators, maximizing NCB gains, and making the appropriate choice of policy.

Do not forget to renew your policy timely to enjoy the benefits of the policy and be financially secured from unexpected situations. Investing in an appropriate car insurance policy gives peace of mind and a secure journey.