Owning a car today might reflect a certain status, but getting car insurance is an essential task you must pay attention to. In India, it is a legal requirement to have car insurance for your safety and your vehicle’s protection. To find out how much you will pay for car insurance, you can use an online premium calculator offered by insurance companies or follow a straightforward formula.
Understanding how your car insurance premium is calculated can help you make informed decisions and get the right coverage at the best price.
How is Premium for Car Insurance Calculated?
You can use a car insurance premium calculator to determine your car insurance premium. This tool estimates your insurance amount and the premium you need to pay.
To use the calculator, you will need to input some details such as:
- Car manufacturer
- Model number
- Year of manufacture
- Registration date
- Fuel type
- Any specific car sub-type or accessories you want to insure
The calculator may also let you choose additional accessories for coverage.
The formula to calculate your car insurance premium is:
Premium amount = Own damage premium – (No Claim Bonus + discounts) + liability premium (set by IRDAI) + add-on costs
How to Use a Car Insurance Calculator?
Usually, car insurance premium calculators quickly provide an estimated premium once you enter your car's registration number on the provider’s website. You can then tailor your quote by selecting optional coverages that suit your requirements.
Don’t forget to include any No Claim Bonus you’ve earned from your previous policies to help lower your premium.
What are the Different Factors Affecting Car Insurance Premiums?
Here are the ten key factors that affect the premium amount of car insurance:
1. Car Type
The kind of car you own is among the most crucial factors that define your insurance premium. Third-party insurance costs will be relatively higher for cars with higher engine cubic capacity (cc). Additionally, if you choose a plan with additional options, the make and model of your car are considered when calculating the premium.
2. Location
The kind of place where you mainly use your car is one factor that determines your insurance rate. Your premium will be higher if you reside in a city with a lot of traffic than in a rural area with very little traffic. This is because the rates of accidents are higher in urban areas because of traffic jams and other related factors.
3. Car Age
The age of your car determines your insurance premium. New cars attract higher premiums because the cost of repairing them is relatively high.In contrast, older cars have lower premiums because repairs and replacement parts are less expensive.
4. Fuel Type
The insurance cost is usually higher when you own a CNG car. This is because CNG vehicles are more expensive to maintain and repair compared to conventional petrol or diesel cars and, therefore, attract higher premiums.
5. Insured Declared Value (IDV)
The IDV is the sum that an insurance company will pay for your car if it is damaged or stolen. This value depends on factors like the brand of your car, the model, the price offered by the manufacturer, and other details from the RTO.
6. Driving Record
Your driving history also affects your car insurance premium. A record of accidents can raise your premium due to higher risk. A poor driving record might also mean you miss out on certain discounts, further increasing your costs.
7. Deductibles
Deductibles are the portion of a claim you pay out of pocket. Choosing a higher deductible can reduce your premium, while a lower deductible will raise it.
8. Type of Coverage
The premium for third-party insurance is regulated and mandatory, but comprehensive coverage premiums vary between insurers. Adding extra features to a comprehensive plan will also increase the premium.
9. Age of the Car Owner or Driver
While insurers in India typically do not use age to calculate premiums, younger drivers are considered higher risk due to a greater likelihood of accidents. This factor may play a bigger role in the future.
10. No Claim Bonus (NCB)
If you do not make any claims during your policy period, you earn a No Claim Bonus, which can lower your premium at renewal. Renewing your insurance policy on time is crucial to ensure you keep this benefit.
What are the Different Ways to Reduce Car Insurance Premiums?
The following are the different ways through which you can reduce your car insurance premiums:
- Buy Car Insurance Online
Purchasing car insurance online can save you money. Online platforms let you compare various policies and find one that fits your needs and budget. You can also use a car insurance calculator to get the best deal and avoid extra agent fees from offline purchases.
- Avoid Small Claims
You risk losing your No Claim Bonus (NCB) if you claim minor damages. This bonus can offer a discount of 20%-50% on your renewal premium. To keep your NCB, consider paying for minor repairs yourself. For example, if your NCB is worth Rs 10,000 and your repair costs are Rs 5,000, it might be better to handle the repair expenses out-of-pocket.
- Transfer No Claim Bonus
Remember to transfer your No Claim Bonus when buying a new car and insurance policy. If you have not made any claims in the previous year, you are eligible for this benefit, as set by the IRDAI. This can help lower your new policy's premium.
- Renew Your Policy on Time
Ensure to renew your car insurance plan before it expires. Insurers usually offer a grace period for late renewals, but if you miss this, your policy might be cancelled. Renewing on time helps you avoid higher premiums for a new policy.
- Install an Anti-Theft Device
Installing an approved anti-theft device in your car can earn you a 5% discount on your annual premium. To qualify for this discount, ensure the device is certified by the Automotive Research Association of India (ARAI).
- Avoid Car Modifications
Modifying your car, such as adding alloy wheels or custom parts, can increase your insurance premium. Try to avoid major modifications to keep your premium lower.
Calculating your car insurance premium involves considering several factors, from your car's type and age to where you live and your driving history. By using a car insurance calculator and understanding these factors, you can clearly understand your insurance costs and ensure you pay a fair amount.
Additionally, you must remember how to manage your car insurance expenses effectively and ensure you get the best value for your coverage.