Premium allocation and payments are an inevitable part of having a car insurance policy. Car insurance premium is the amount of money a policyholder agrees to pay throughout the policy term.
These period payments are the policyholder’s part of the deal, and they keep the policy going, allowing claim filing. If you have car insurance, you must know how premiums work. Different factors, such as IDV in insurance, coverage and the vehicle, determine the premium amount.
Knowledge of this concept and its factors will enable you to calculate auto insurance premiums and make better decisions. So, here we go!
Ways to Calculate Car Insurance Premium
● Online Car Insurance Calculator
You can decide to buy car insurance based on the premium amount and whether or not you can afford to pay it. Online car insurance calculators are technological tools that assist you in calculating the policy premium. Many trusted and reliable providers like Tata AIG offer the calculator feature on their official website.
Here is how you utilise the online car insurance calculator feature:
- Enter the make and model of your vehicle.
- Enter the fuel type.
- Select the correct year when you purchased the four-wheeler.
- Enter your claim history and whether or not you have filed any claims previously.
- When you click on the calculate button, the tool calculates all the factors to provide the Insured Declared Value (IDV) and car insurance premium.
- You can adjust the policy premium by adding additional coverage or reducing the IDV amount.
Using this calculator to calculate auto insurance premiums is a straightforward and quick way to calculate your car insurance premium.
● Car Insurance Premium Formula
The following formulae will help you reach the desired premium amount.
- In the case of a third-party liability policy, the car insurance premium depends on the vehicle’s CC (cubic capacity) and is determined by the IRDAI.
- In the case of own-damage cover car insurance:
Own-damage premium – IDV X (Premium rate) + (add-ons) – (NCB or discounts)
The premium rate, in this case, is determined by the insurance company.
The formula for IDV:
IDV = Showroom vehicle price + added accessory cost (if any) – depreciation as per IRDAI
- In the case of comprehensive car insurance:
Comprehensive Insurance Premium = Own-damage premium – (NCB + discounts) + liability premium as per IRDAI + add-on cost
Factors Affecting Car Insurance Premium
● Car Details
When the insurance company calculates auto insurance premiums and IDV; it always considers the car’s make, model, variant and fuel type. These components are the basic building blocks of a vehicle and its safety.
For instance, the vehicle’s model, latest or old, will determine how many safety features it has. If it has more built-in safety features, the car insurance premium will be lower than that of the vehicle that does not have those features.
● Vehicle’s Age
Your car’s age and depreciated value are directly related. As the years pass, your car depreciates more and more. The insured declared value of your car is dependent on the depreciation of your car, and the car insurance premium is determined using these two aspects.
Old cars are more depreciated than new ones, leading to lower premiums on these old cars.
● Coverage
The type of car insurance policy makes a lot of difference. Whether you purchase third-party, own-damage or comprehensive car insurance will determine how low or high your premium will be.
Third-party coverage plan will offer financial assistance for third-party liabilities, an own-damage plan will provide coverage for your vehicle’s expenses and a comprehensive coverage plan offers all-inclusive coverage.
In the case of an own damage or comprehensive cover policy, you may even add different add-ons or riders that provide additional coverage for your car. The premium will increase as the coverage and benefits increase.
● Location
Your location determines the premium because some locations have higher safety standards established, whereas some don’t. The number of accidents that take place in the area also greatly affects the premium. For instance, car insurance will cost more if you live in a metro city.
● Insured Value
The Insured Declared Value (IDV) highly affects your policy premium. Your policy’s IDV is directly related to the premium. When your IDV is high, your premium is high. Whereas if the IDV is low, the premium is low.
Ending Note
Car insurance comes with concepts such as car premiums, IDV and calculators. Understanding the nuances of these concepts will help you make better decisions for your policy experience and profitability.
Not understanding the concept of car insurance premiums might have implications, such as unfair premium allocation, overburdening you and a lapsed policy due to inability to pay.
