How are Car Insurance Premiums Calculated - Complete Guide

Most car owners are well aware that to drive their car on the road, it is necessary to have car insurance. While a third-party car insurance policy is mandatory in India as per the Motor Vehicle Act of 1988, most people prefer a comprehensive policy for better coverage that it offers. As a car owner you may know that insurance is necessary, but do you know how car insurance premiums are calculated? These days, one can easily calculate the car insurance premium using a car insurance premium calculator. However, to understand how a car insurance premium calculator works and what aspects determine the car insurance premium, it is essential to know what impacts car insurance. 

Given below are the various factors that influence the car insurance premium calculation.

1. The Type of Coverage 

The coverage of your car is one of the most important factors that influence car insurance premium calculation. Third-party insurance coverage is mandatory insurance coverage and its insurance premium is decided by the Government of India. If you have purchased a comprehensive cover, you will find variations in the premiums of different companies according to the plans that they offer. But if you are going to purchase add-on covers along with the comprehensive cover, you will have to pay a higher insurance premium amount. Hence, it is always advised to choose the insurance plan according to the budget and needs.

2. The MMV of Your Car
   
   The MMV (Make, Model, Variant) impacts the insurance premium of your car. The variant denotes the size of your engine. If it is of a standard size, the risk factor of your car will be low. Hence, when you buy car insurance policy to assure its safety, you will have to pay a low insurance premium. In addition to it, the make and the model of the car also impact how much you will pay to the car insurance company. 
    
3. The Age of Your Car
   
   The age of the car determines the premium that you will pay for your car insurance to your chosen car insurance company. While with an older car the premium may come down with time, but sometimes you will have to pay more because of the high-risk factor involved in it. As if it gets damaged, its repair cost will be high. Therefore, car insurance companies decide the rate of insurance premiums according to the car’s age.
    
4. The IDV of Your Car
   
   IDV (Insured Declared Value) refers to the current market value of your car. You can use an IDV calculator online to know the IDV of your car. IDV is the current value of your car or its price if you will sell your car today. IDV heavily influences your car insurance premium. If your car’s IDV is high, you will have to pay a higher insurance premium and vice versa. You should not deliberately decrease the IDV of your car for the purpose of lessening the car insurance premium. 
    
5. The Deductibles You Choose
   
   Deductibles are also filed in the car insurance premium calculator when you are calculating your car insurance premium. If you have chosen voluntary deductibles, your premium will be lower. In case you do not want to burden yourself when you make a claim, you can do so by paying a higher premium.  
    
6. The Add-Ons You Pick
   
   While using a car insurance premium calculator, you would see that every add-on that you include in your car insurance will add to the premium amount. It is therefore important that you know the meaning and coverage of every add-on, and choose only the ones that you find to be of use to you. For example, if you are purchasing/ renewing car insurance for a brand new car, opting for a zero depreciation cover can be beneficial.
    
7. The City You Live In
   
   The city in which you live also determines the rate of your insurance premium. If you live in a highly populated city, the risk factor will be high due to the unruly traffic, vandalism, and congestion. The high-risk factor will certainly impact your car insurance premium calculation. Your car insurance company will ask you to pay a higher insurance premium for your car as the chances of damaging the car in any unfortunate accident are higher in your city. Hence, you should get the registration of the car in which city you live.
    
8. Your Driving History
   
   How efficient a driver you are can also determine your car insurance premium. If you have had previous records of car accidents, your car insurance premium can be higher. In addition to it, you also would not get the benefit of the NCB (No Claim Bonus) discount. Thus, good driving habits will help you get up to 50% discount on your upcoming premium. Hence, you should be very careful when you drive. Rash and reckless driving is not only dangerous but also becomes expensive when you buy car insurance coverage.

Conclusion

While you can calculate the car insurance premium in a few moments using the car insurance premium calculator, it is essential to understand the factors that are taken into account to determine the premium. Understanding these factors would not only help you pick a suitable insurance policy for your beloved car, but you would also be able to manage the premium you pay.

Disclaimer: This article is published in association with Bajaj Finance Limited and not created by TNM Editorial.