Buying Car Insurance? Here’s How to Calculate Car Insurance Premium Like a Pro!
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Introduction
Buying a car comes with a lot of excitement, but it also brings responsibilities - one of the most important being car insurance. Whether you’re purchasing a new car or renewing an existing policy, understanding how to calculate car insurance premiums is crucial to get the best deal.
Your car insurance premium isn’t a random number, it’s based on various factors like the car’s model, location, coverage type, and add-ons. If you’ve ever wondered why two people with similar cars pay different premiums, this guide will break it down for you.
Let’s dive in and understand how to calculate car insurance premiums and what factors impact the amount you pay.
What is a Car Insurance Premium?
A car insurance premium is the amount you pay to an insurance company to ensure your vehicle remains covered by insurance. It guarantees financial protection against damages, theft, and third-party liabilities. The premium amount depends on factors like:
-
Type of coverage (third-party or comprehensive insurance)
-
Car model type
-
Age and location of the car
-
Add-ons and additional coverages
To accurately estimate your car insurance premium, let’s look at the key components that determine the cost.
Factors That Affect Car Insurance Premiums in India
|
Factor |
Impact on Premium |
|
Type of Coverage |
Comprehensive insurance costs more than third-party insurance. |
|
Car Make & Model |
Expensive cars or SUVs have higher premiums due to costly repairs. |
|
Insured Declared Value (IDV) |
Higher IDV means a higher premium but better compensation in case of theft or total loss. |
|
Age of Car |
Older cars have lower premiums due to depreciation. |
|
No Claim Bonus (NCB) |
If you haven’t made a claim in previous years, you get discounts (up to 50%). |
|
Location |
Cars in metro cities have higher premiums due to increased accident risk. |
|
Add-ons |
Extra coverage like zero depreciation, engine protection, and roadside assistance increases premiums. |
|
Deductibles |
Opting for voluntary deductibles reduces the premium but increases out-of-pocket expenses during claims. |
Now, let’s get into the actual method of calculating car insurance premiums.
How to Calculate Car Insurance Premium
Car insurance premiums are determined using a set formula. Here’s the basic formula used by insurers:
Formula for Car Insurance Premium
Premium = Own Damage Premium+Third-Party Premium+Add-ons−Discounts {Premium} = {Own Damage Premium} + {Third-Party Premium} + {Add-ons} - {Discounts}
Step-by-Step Breakdown
Calculate the Own Damage (OD) Premium
Own damage premium covers damages to your car. It is calculated based on the Insured Declared Value (IDV) and the car’s age.
IDV=Manufacturer’s Price−Depreciation\ {IDV} = {Manufacturer’s Price} - {Depreciation}
|
Age of Car |
Depreciation Applied on IDV |
|
0 - 6 months |
5% |
|
6 months - 1 year |
15% |
|
1 - 2 years |
20% |
|
2 - 3 years |
30% |
|
3 - 4 years |
40% |
|
4 - 5 years |
50% |
For example, if your car’s ex-showroom price is ₹10,00,000 and it’s 2 years old, the IDV will be:
10,00,000−(20% of 10,00,000) = ₹8,00,00010,00,000 - (20% { of } 10,00,000) = ₹8,00,000
The premium is usually 1.5% to 3% of the IDV. If the insurer charges 2.5% of ₹8,00,000, the OD premium will be ₹20,000.
Add the Third-Party Liability Premium
Third-party insurance is mandatory by law and covers damages to other people or property.
IRDAI sets fixed third-party premiums based on engine capacity:
|
Engine Capacity (CC) |
Third-Party Premium (Annual) |
|
Up to 1000 CC |
₹2,094 |
|
1000 CC - 1500 CC |
₹3,416 |
|
Above 1500 CC |
₹7,897 |
If your car has a 1200 CC engine, your third-party premium is ₹3,416.
Include Add-On Covers (Optional)
If you opt for extra coverage, it increases your premium.
|
Add-On Cover |
Extra Cost on Premium |
|
Zero Depreciation |
15-20% of OD premium |
|
Engine Protection |
₹2,000 - ₹4,000 |
|
Roadside Assistance |
₹1,000 - ₹2,000 |
|
Consumables Cover |
₹1,500 - ₹3,000 |
If you choose Zero Depreciation (₹4,000) and Roadside Assistance (₹1,500), your add-on cost is ₹5,500.
Apply Discounts (NCB & Voluntary Deductibles)
No Claim Bonus (NCB): If you haven't made a claim, you get discounts:
|
Claim-Free Years |
NCB Discount |
|
1 year |
20% |
|
2 years |
25% |
|
3 years |
35% |
|
4 years |
45% |
|
5+ years |
50% |
If your OD premium is ₹20,000 and you have 2 years of NCB, you get a ₹5,000 discount.
-
Voluntary Deductibles: Choosing a deductible of ₹5,000 can reduce your premium by 10%.
Final Premium Calculation Example
|
Component |
Cost (₹) |
|
Own Damage Premium |
20,000 |
|
Third-Party Premium |
3,416 |
|
Add-Ons (Zero Depreciation + RSA) |
5,500 |
|
NCB Discount (-25%) |
-5,000 |
|
Voluntary Deductible Discount (-10%) |
-2,000 |
|
Final Premium |
₹21,916 |
Now, you have a clear understanding of how to calculate a car insurance premium and make informed choices.
Conclusion
Knowing how to calculate car insurance premium helps you choose the right policy while avoiding unnecessary expenses. By considering factors like IDV, NCB, location, and add-ons, you can optimize your premium and get the best deal.
Before finalizing your policy, compare multiple insurers, use online calculators, and select coverage that suits your budget and needs. Happy driving, and stay insured!
Loan in
60 Minutes
Introduction
What is a Car Insurance Premium?
