6 Factors That Define Car Insurance Premium Calculation

Buying a car insurance policy will safeguard your financial interests in case of certain unfortunate incidents related to your car. The premium paid by each policyholder might differ due to the way an insurer will calculate car insurance premium. To arrive at a certain amount a car insurance premium calculator is.

Even the policyholder can calculate car insurance premium by understanding the factors that affect the cost of their policy. In this article, we will take a look at the factors that car be used in a car insurance premium calculator to determine the premium.

  1. Type of policy

The very first parameter that is considered while calculating car insurance is the type of policy. It is mandatory by law to at least buy a third-party car insurance policy. However, it only offers coverage against third-party liabilities and a personal accident cover. It does not cover the cost of repairing damages to the insured car i.e. own damage. Own damage is covered under a comprehensive car insurance plan. Increased coverage comes at an increased cost. Thus, the type of car insurance policy is an important parameter for calculating car insurance premium.

2. IDV

IDV stands for Insured Declared Value. It is the approximate current market value of the insured car. IDV decreases each year due to depreciation. IDV is also important while buying or renewing a comprehensive car insurance policy. If the insured car is stolen or gets damaged beyond repair, the insurer will pay an amount equal to the IDV as compensation. Thus, it is said that setting the right amount of IDV is important as a lower amount will decrease the claim amount and a higher IDV will increase the car insurance premium.

3. NCB

If the policyholder does not raise a claim in the previous policy year, he/she is entitled to a discount at the time of car insurance renewal. NCB stands for No Claim Bonus. It can be as high as 50% if no claims are raised for 5 consecutive years. Driving safe will help you avoid raising a claim. This discount is regarded as the highest discount one can get on the car insurance premium. Since NCB is awarded to the policyholder he/she can continue to avail this discount irrespective of the car they drive. For example, if you wish to sell your old car and buy a new one, you can get the accumulated NCB transferred with the help of a transfer certificate.

4. Add-ons

Additional coverage options or Add-ons can be bought only along with a Comprehensive Car Insurance Policy. They extend the scope of your policy and allow you to make a claim against certain exclusions. For example, any damages to the engine are not covered under a basic comprehensive policy. However, if you purchase an Engine Protection Add-on, you can make a claim if the engine gets damaged due to an accident or a calamity.

5. Discounts

Other than the No Claim Bonus, you can avail discounts for installing an anti-theft device or by becoming a member of certain associations. First, let’s discuss the anti-theft device. When you install such a device, that is approved by the Automotive Research Association of India, you take a precautionary measure against the theft of your car. Since you try to eliminate the possibility of theft in this manner, your insurer may appreciate the efforts you took and award a certain discount on the premium of your car insurance policy. Likewise, if you become of any of the Automobile Association of India you might be eligible for an additional discount.

6. Deductibles

A car insurance policyholder can opt any one or both of the types of deductibles while buying the policy. The first type is the compulsory deductible, that you need to pay at the time of claim settlement. It is a negligible amount that is to be borne by the policyholder. He/she cannot decide the amount of compulsory deductible to be paid to the insurance company. Another type is the Voluntary deductible. This is the amount that the policyholder can set while buying the policy. In this case, he/she need to bear the amount at the time of claim settlement.

The Bottom Line

Use the above factors to calculate car insurance premium using the calculator. You can tweak certain factors and try to adjust the premium to fit your budget.


Author: Eddy

Eddy is the editorial columnist in Business Fundas, and oversees partner relationships. He posts articles of partners on various topics related to strategy, marketing, supply chain, technology management, social media, e-business, finance, economics and operations management. The articles posted are copyrighted under a Creative Commons unported license 4.0. To contact him, please direct your emails to editor.webposts@gmail.com.