How is Motor Insurance Premium is Calculated in India?

Introduction

In compliance with Section 146 of the Motor Vehicles Act, 1988, it is mandatory to purchase motor insurance before you can legally take your vehicle out on the streets. A comprehensive motor insurance policy covers damage to third parties and also compensates you for your losses. Should you choose not to opt for a comprehensive plan, buying third-party coverage is the bare minimum requirement that you need to fulfil for your vehicle to ply.

While your car insurance premium can often be adjusted for any bonus or discount the insurer is willing to offer, they only calculate it after fixing the premium amount. Below, we'll explain how companies calculate motor insurance premiums and all the factors influencing the final value.

What is Motor Insurance Premium?

Motor insurance premium is the amount that you pay to have your vehicle insured for you to be able to legally drive it on the road. Usually, motor insurance premiums are paid annually to insure your vehicle. It can be taken out on cars, two-wheelers, trucks, etc. depending on the type of vehicle you own. There are various components to a motor insurance premium, which have been outlined in the next section. Your premium amount will depend on the various components or add-ons that you choose.

Components of Motor Insurance Premiums

Insurance companies consider several elements before deciding your premium. You can pre-empt these charges by using a motor insurance premium calculator, which will tell you how much you need to pay depending on the kind of cover you choose. Here are the cover options that motor insurance offers:

Third-Party Liability Cover

Third-Party Liability is the foundation of every automobile insurance. It covers any damage to a person or property caused by the insured vehicle that results in financial loss to the said person or property. It does not, however, cover expenses borne by you for any repairs. Therefore, it's always prudent to opt for a comprehensive policy that covers losses resulting from damages to your vehicle as well as to a third party.

Own Damage Cover

This particular cover might be optional, but it offers several key benefits. For instance, it reimburses you for expenses accrued in case your car suffers some damage from an accident or natural events like earthquakes, fires, storms, etc. The premium for Own Damage cover is calculated as a percentage of Insurance Declared Value, as decided by the Indian Motor Tariff.

The IDV is calculated as follows:

IDV = Car's showroom price + cost of options and accessories (if any) – depreciation value as per IRDAI

The Own Damage Premium amount would be:

Own Damage Premium = IDV * [premium rate decided by insurer] + [Add-Ons] – [Discount & Benefits]

Personal Accident Cover

Going beyond your car, this component of a premium strives to protect you against accidents and mishaps. You can also extend the policy cover to insure your passengers. Naturally, your premium will increase as the sum assured goes up.

Additional Riders

Riders are add-ons that provide various kinds of protection and services to you at a nominal cost. One of the most commonly used riders is the no-claim bonus, wherein policyholders are eligible for a sizeable discount on the premium if they haven't made any claims during a policy year. Each additional rider fulfils a purpose and makes your policy stronger to ensure you are protected at all times.

Additional Read: What is Insurance all about?

What is a Motor Insurance Premium Calculator?

A motor insurance calculator can help determine the insurance premium that needs to be paid based on aspects like IDV, cubic capacity (CC) of the engine, geographical driving zone, type of fuel used, and the vehicle's age. There are numerous benefits to using this: you can compare different policies and pick the best plan for yourself while managing your finances ahead of time. You can check out the hundreds of free motor insurance calculator options and make the process of buying motor insurance a whole lot easier.

Additional Read: What is Life Insurance? What are its Coverages?

Conclusion

Getting your own vehicle has become a necessity in this fast-paced world. However, due to how expensive the purchase can be, it's crucial to insure your vehicle and prevent further expenses for repairs in case of accidents. If you want to decrease your premium amount, you can ensure that your IDV is correct and buy a vehicle that meets all your requirements. Researching different options and using a motor insurance calculator before settling for an insurance plan is the best way to keep you safe and insured.

FAQs

   1. How are car premiums calculated?

Car insurance premiums are calculated based on the insurance cover that you choose. For instance, you can choose to only have the mandatory third-party liability cover. This will keep your insurance amount at a minimum. Or, to protect yourself further, you can choose to take on own damage cover. Damage cover is calculated as a percentage of Insurance Declared Value, as decided by the Indian Motor Tariff. You can also choose to take on additional cover in the form of personal accident cover and rider benefits. The premium amount will go up with the number of benefits that you choose.

   2. How is own damage premium percentage calculated?

Damage cover is calculated as a percentage of Insurance Declared Value, as decided by the Indian Motor Tariff.

The IDV is calculated as follows:

IDV = Car's showroom price + cost of options and accessories (if any) – depreciation value as per IRDAI

The Own Damage Premium amount would be:

Own Damage Premium = IDV * [premium rate decided by insurer] + [Add-Ons] – [Discount & Benefits]

   3. How is insurance premium calculated on a new car?

Insurance premium on a new car is calculated based on its ex-showroom price. This means that you can be insured for the total value of the car. Older cars are insured based on their value at the time of driving on the road. For instance, if you have a four-year-old car which is worth Rs. 3,00,000 at the time of getting insurance, the amount of insurance you can get will not exceed Rs. 3,00,000.

Disclaimer :

ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec acts as a Composite Corporate agent having registration number –CA0113. Please note, Insurance related services are not Exchange traded products and I-Sec is acting as a corporate agent to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. Insurance is the subject matter of the solicitation. The advertisement contains only an indication of the cover offered. For more details on risk factors, terms, conditions and exclusions, please read the sales brochure carefully before concluding a sale.