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Insurance Article

How Does Car Insurance Premium Get Calculated?

July 18 2017

A list of major factors, based on which, your car insurance premium is calculated

Road accidents kill nearly 400 people per day in India. Third party car insurance is mandatory for vehicles plying on Indian roads. Every new car that is purchased needs to have car insurance. It therefore, becomes imperative to understand what car insurance is and how car insurance premiums are calculated.

What is Car Insurance?

Car insurance is insurance you buy as a shield against monetary losses due to a car accident. A comprehensive car insurance plan consists of three components - the mandatory third party cover, the own damage cover and the personal accident cover.

  • Third Party Cover:

    A third party cover is a safeguard against any damage to another person or property that may have been caused by your vehicle. It is also mandatory by law.
  • Own Damage Cover:

    The own damage cover, meanwhile, covers the damages caused to your own vehicle in an accident.
  • Personal Accident Cover:

    Finally, the personal accident cover is a safety net that provides financial relief, in case of your death or permanent disability due to an accident.

Factors That Affect Car Insurance Premiums

While buying car insurance, several factors should be taken into consideration, the premium being the first and most important. The premium for your car insurance depends on the following factors:

  • Insured Declared Value (IDV):

    The IDV is the maximum amount or sum assured that you can claim from your insurer, for a damaged or stolen car. Your IDV may vary depending on the ex-showroom price and depreciation of your car. So, the older your car gets the lower the IDV.
  • Car Model:

    Your premium will vary based on how expensive your car is. More expensive cars with a higher engine capacity (exceeding 1500cc), like luxury sedans and SUVs will have higher premiums, while base car models with lower engine capacity (below 1500cc) will have lower premiums.
  • Age of Car:

    Since, the IDV changes with the age of your car, age is also an important factor in car premium calculations. The older your car gets, the more depreciated it is, leading to a lower IDV and the lower the IDV, the lower the premium.
  • Car Safety:

    Another major factor affecting your car insurance premium is how safe your car is. Insurance premiums for cars with advanced safety features will be lower than those without such features. This is because safety features like airbags, ABS, collision warning systems, anti-theft alarms and automatic braking make your car less susceptible to theft and accidents.
  • Location of Car:

    The registration address of your car is also a determining factor to calculate your car insurance premium. Car insurance purchased at locations with higher crime and accident rates will have higher premiums as the car becomes more susceptible to theft or damage in such areas. This makes car insurance costlier in urban areas than rural ones, as crime and accident rates are usually higher in urban areas.

Take your time to research and make an informed choice regarding the car insurance policy you will need. Once you have decided, you can calculate the premium for your chosen car insurance policy using an online car insurance calculator, before you actually take the plunge.

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