Insurance Guide: How To Calculate Car Insurance Premium?

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Have you ever wondered how insurance for your car is calculated? You must have heard terms such as Insured Declared Value (IDV), No Claim Bonus (NCB), and Depreciation and more and thought 'what does this all mean?'

Here is a simple guide as to how to calculate your vehicle insurance and all the other essential data related to car insurance.

First, an insurance premium has two major components - Own Damage Comprehensive Cover and Third Party Cover. The Own Damage Comprehensive Cover depends on three major factors, which are Location, Age of Car, and Engine Capacity of the car. The Third Party Cover depends on Engine Capacity only.

Since insurance is not at all a hassle for a new vehicle, let's take a look at for a vehicle that is just above a year old. Let's take an Alto for example.

If your Alto is just above a year old and under 2 years old, the IDV is applied at 80 percent of the car's ex-showroom value (20 percent depreciation since car is already a year old). If the car costs Rs. 4 lakh (ex-showroom), then 80 percent of the car's ex-showroom value is Rs. 3.2 lakh.

Now, the premium will be calculated at 3.127 percent. That is 3.127 percent of Rs. 3.2 lakhs, which is Rs. 10,000.

Now, this is when insurance premiums differ from company to company. Companies offer different percentage of discounts on the premium amount. Let's take for example the insurer is offering 50 percent discount, then 50 percent of Rs.10,000 is Rs. 5,000.

The next important factor that determines how much you pay for insurance is the No Claim Bonus. You get around 20 percent off from the premium if you have not claimed for insurance in the past year. The discount increases for more consecutive years you have not claimed for insurance. Since we are speaking of a car that is above one year old and below two, the NCB discount is 20 percent of Rs. 5,000, which is Rs. 1,000, and that amounts to Rs. 4,000 (Rs. 5000 - NCB Discount of Rs. 1,000).

Next step is the third party premium, which covers third party (apart from you) in case of an injury to a person or damage to property. The premium is based on the car's engine capacity and is revised year after year. Since the Alto is below 1,000cc, the premium is Rs. 1,468. The premium for vehicles between 1,000cc to 1,500cc is Rs. 1,598 and for vehicles above 1,500cc is Rs. 4,931. So now adding Rs. 1,468 (premium for vehicle below 1,000cc) to Rs. 4,000, you are now looking at a total of Rs. 5,468.

One last step to go. Now is when the Personal Accident cover and service tax gets added to the last total. The Personal Accident cover is a standard amount of Rs. 100. Service tax is 14 percent. So now adding 14 percent service tax to Rs. 5,486 and Rs. 100 (Personal Accident cover), you get a grand total of Rs. 6,348. That is how insurance is calculated. Of course, insurance add-ons will be extra, depending on what kind of add-ons you opt for.

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Story first published: Tuesday, April 12, 2016, 11:23 [IST]
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