While calculating your car insurance premium, you need to consider a lot of things. When you buy a policy, the insurance company also offers you the fine print of the exceptions, terms and conditions, add-ons, exclusions, and many other things. Although insurance providers do share the precise premium amount, very often they don’t disclose how the figure was determined.

Knowing how companies calculate car insurance premium is a must if you want to save more and make a smart decision.

What is a car insurance premium?

When you select insurance coverage for your car, your insurance company charges you either in a lump sum or in regular instalments in return for the insurance cover. This charge that you pay to the company is known as insurance premium. Car insurance premium rates include the following coverage options:
  • Third-party cover or TPL
  • Own damage cover or OD
  • Personal accident cover

How does an insurance company calculate insurance premium?

Most insurance companies consider the following factors to calculate motor insurance rates:

  1. The age of the vehicle:
  2. The age of your car matters a lot when it comes to determining motor insurance rates. When the latest models come into the market, the older ones lose their value. Similarly, when a vehicle undergoes several repairs, it becomes less valuable than the newer version of the same model.

  3. The cubic capacity of the engine:
  4. The insurance company determines the motor insurance rates depending on the engine’s cubic capacity. The cubic capacity helps in determining the size of the engine. You must know that the premium is the same for both old and new engines. This is because the premium is based on a vehicle’s engine size and not on the engine’s functionality or performance.

  5. Insured declared value or IDV:
  6. Insured Declared Value refers to the current market value of the vehicle, excluding registration. It is the maximum amount that is compensated by the insurance provider in case of an accident or any damage to the vehicle. The car insurance premium is calculated based on the IDV of your car.
Conclusion:

Car insurance is undoubtedly the best way to protect your car financially in case of any loss. By keeping the above factors in mind, you can calculate your motor insurance rates and determine which insurance service provider is charging you the most optimal car insurance premium.

Click here to apply for a motor insurance.

DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.



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