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Saturday, September 19, 2020

How is Car Insurance Premium Calculated?

The car insurance premium is the money paid to the insurance provider for reducing risks associated with possessing a car. We know it has benefits; but what are the costs? Here is a look at how car insurance premium is calculated based on three factors.

  • Insured declared value or IDV is the value of the car as estimated by the insurance company when a motor insurance application is made for the first time. This value is the maximum amount up to which Claim can be made in case of accident or theft of the car. You need to note that IDV tends to change, and decrease over time, with depreciation. However, note that IDV is used only in the case of a comprehensive insurance policy cover.
  • Cubic capacity (cc) is a measure of the size of a car engine. Since cubic capacity does not change with time unlike IDV, it affects the premium amount of third party insurance cover and not that of comprehensive policy cover. The higher the capacity, the higher the premium, as stipulated in the Indian Motor Tariff Act.
  • The age of the car is another important factor that determines car insurance premium. As a matter of logic, the older the car, the higher the depreciation; this means that older cars, as a general rule, would incur higher risks, and hence, would involve higher premiums. However, it is not just a simple calculation here, since other factors such as the price of the car or the IDV, and safety features present in the older models as against the new ones.

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