How is Motor Insurance Premium Calculated?

A question that is frequently asked is how the vehicle insurance premium is calculated. The policy documents have a number of sections that include special cases, exclusions, as well as terms and conditions that one must go through and understand.

However, most people agree with the insurer on the premium amount set, but often fail to understand how the premium amount was calculated. Some of the factors that determine the premium to be paid by policyholders for motor vehicle insurance plans include:

• Personal accident.

• Own damage cover.

• Third-party cover.

• Riders.

Personal Accident Cover

Personal accident cover is the component in the insurance policy premium that safeguards policyholders from accidents and mishaps that cause disability. Disability coverage is an essential component in insurance plans as it is a probable outcome of any road traffic accident. Therefore, purchasing a personal accident cover becomes all the more important to protect yourself. It must be noted that the premium paid for this cover goes up when the insured sum increases as well.

Own Damage Cover

Own damage insurance cover is an option that is beneficial for policyholders. Earthquakes, storms, fires, and accidents may cause damages to the policyholder's vehicle which are not always covered by a motor insurance plan you buy. Ideally, it is best to invest in higher insurance declared value that helps increase the premium amount. However, policyholders should make a note that as the vehicle ages, the IDV decreases.

Third-Party Cover

The reason why third-party liability vehicle insurance is mandatory in India is that it protects the insurer from any liability caused due to accidents. However, it must be noted that this cover does not include repair costs.

Therefore, one should select a policy that covers damages caused to own vehicles as well. Also, the premium to be paid by the policyholder is dependent on the motor vehicle’s capacity as defined by the Insurance Regulatory Authority of India (IRDAI).

Other Riders

Policyholders should also invest in riders or add-on plans. The biggest advantage of opting for riders is that it helps protect the policyholder’s interests without spending a lot of money.

Roadside assistance is a popular rider that policyholders opt for, and it comes in handy particularly in situations where the policyholder is travelling in an unfamiliar area. Another popular rider is the no claim bonus where policyholders receive a substantial discount on the premium if no claims have been made during a policy year.

What is a Motor Vehicle Insurance Premium Calculator?

A cause of concern that many insurance policyholders face is calculating the insurance premium to be paid. However, to make this task simpler, one can use an online motor insurance calculator.

In order to calculate the premium of the online motor insurance with a calculator, the following aspects need to be taken into consideration:

• IDV

• Cubic capacity

• Age of the motor vehicle

IDV

IDV or the insured declared value of the motor vehicle is nothing but an estimate made by the insurance company at the time you buy motor insurance in India. It is the maximum claim amount that the policyholder can raise a claim for in the event of theft or accident.

IDV rate changes over time considering depreciation. Also, note that IDV is exclusively used for comprehensive insurance policies.

Cubic Capacity

Cubic capacity or cc is the measurement of the size of the vehicle’s engine. Unlike IDV, the size of the engine remains constant and hence does not affect the calculation of the premium for vehicle insurance.

However, it must be noted that vehicles with higher engine capacity require a higher premium to be paid. The tariff rates are set and regulated by the Indian Motor Tariff Act.

Age of the motor vehicle

The age of the motor vehicle is an important determining factor when it comes to calculating motor insurance premiums online. The older the vehicle, the higher will be the depreciation on it.