Published on February 9th, 2020 | by Bibhuranjan


How the Car Insurance Premiums are Calculated by the Insurance Companies in India

Car Insurance is a policy contract that exists between the buyer and the insurance company. It protects the car owner against the financial losses that may arise in the event of an accident or theft. The insurance policy also protects the owner from the legal liability that arises due to third party bodily injury, property damage, and death. Damages of this type may arise due to the buyer’s fault.

You will be paying a premium amount for the benefits that you receive from the insurance company.

Two types of car insurance policies

In the Indian market, there exist two types of car insurance policies :

  1. Comprehensive Package Policy
  2. Third-Party Liability Policy
  3. Comprehensive Car Insurance (Package Policy):

The Comprehensive Car Insurance policy cover for:

  • Own damage
  • Third-party liability
  • Compulsory personal accident
  • Additional optional add-ons can be added for more coverage.

We can break down how the premium is calculated as follows:

  • For Own Damage, the premium depends on the Insured’s Declared Value of the Car (IDV). IDV is the amount that the insurance company will pay you when something happens to your car.
  • The premium for third-party liability depends on the cubic capacity of the car and is fixed by the IRDAI. This component will pay for the injuries/damages caused to the third-party due to your fault.
  • The compulsory personal accident cover is for the driver or the owner. It offers coverage up to Rs.15 lakhs.
  • You can add add-ons like zero depreciation cover, engine and gear protection cover etc to further enhance the scope of your coverage.

2.Third-Party Liability Policy

Users can buy a stand-alone third-party liability policy wherein there will be no coverage for the damages caused to your own vehicle; only for the third-party’s damage/injuries. Third-Party Liability Policy has been made mandatory by the government of India. As per the Motor Vehicle Act 1988, every car should have a third-party liability policy. The premium for this policy will be based on the cubic capacity of the car.

Premium Calculator

Suppose you purchased a Maruti Wagon R for Rs.378000/-. You can calculate the premium using the Car Insurance Premium Calculator, this is the premium you will have to pay.

IDV or Sum Insured selected by RahulRs.3,50,281
The third-party premium for a car less than 1000cc (Fixed by IRDAI)Rs.2,072
Own damage premium 1.5% of IDVRs.5,233
Mandatory personal accidents coverRs.220
Net PremiumRs.7525
GST @ 18%Rs.1355
Gross PremiumRs.8880

Factors that affect the Car Insurance Premium

Some of the factors that affect the car insurance premium may include:

  1. Past Claim History: If you haven’t made any claim in the past years, you will be given a discount on the premium amount when you renew your policy. This discount is known as No Claim Bonus (NCB)
  2. Age of the vehicle: As your vehicle gets older, the premium amount also gets lesser.
  3. Zone in which the vehicle is used: If you use your vehicle in metropolitan areas where there is a high density of vehicles, then the probability of you getting into an accident is also higher; the premium, hence, will also be higher.
  4. Type of Engine: If you have a higher cc engine car, the premium will be higher.
  5. Security System Enabled Car: If you have additional security systems enabled in your car, the chances of recovering your vehicle when stolen will be higher. This puts less pressure on the insurance company and hence you will be given a discount on your premium as a reward.
  6. Type of Insurance Policy: If you opt for a comprehensive insurance policy, the premium will be higher. If you further customise it with add-ons, the price will shoot up again. If you are opting for a standalone third-party policy, then the premium amount will be lesser.
  7. Add-ons opted for: With additional add-ons, the premium amount will be higher.

Car Insurance Renewal

For Car insurance renewal, the following factors should be kept in mind:

  • Compare the insurance premium quotes online.
  • Renew well in time to not lose the No Claim Bonus.
  • Keep the car insured to avoid any unexpected losses.

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Editorial Officer, I'm an avid tech enthusiast at heart. I like to mug up on new and exciting developments on science and tech and have a deep love for PC gaming. Other hobbies include writing blog posts, music and DIY projects.

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