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How to Calculate Car Insurance Premium?

Team AckoNov 15, 2021

Car insurance premium is the cost of a car insurance policy. It is the amount you pay to get your car secured with insurance. It is believed that calculating the premium of a car insurance policy is very difficult and requires using complex formulas. On the contrary, one can easily deduce the amount he/she needs to pay in order to get a car insured even before purchasing a car insurance policy.

How to Calculate Car Insurance Premium

Components of Car Insurance Premium

To calculate car insurance premium, insurers consider certain factors. These factors directly affect an insurance premium amount. Following are the components of a car insurance premium:

1. Type of Car Insurance Policy

The main component of a car insurance premium is the type of policy. It can be of two types, a Third-Party Liability Policy and a Comprehensive Car Insurance Policy. Third-Party Liability Policy is mandatory by law and offers less coverage as compared to a Comprehensive Car Insurance Policy. Consequently, the cost of a Third-Party Liability Policy is less than a comprehensive policy.

2. IDV

IDV in insurance is the abbreviation of Insured Declared Value. It is the current market value of a car. While buying a car insurance policy one can set the approximate amount of IDV. It is believed that the insurer decides the IDV amount for you, however this not the case. The owner of the insured car should set the IDV. If your car gets damaged beyond repair or stolen, your insurer will pay you the amount equal to the set IDV of your insured car.

3. Add-ons

One can buy Car Insurance add-ons only with a Comprehensive Car Insurance Policy. These are extra coverage options which you can buy according to your needs. Some of the popular Add-ons are Zero Depreciation Cover, Engine Protection Cover, Roadside Assistance, and NCB Protect Add-on. Each Add-on serves different purposes. For an older car, opting for Roadside Assistance Add-on would make sense as the chances of an aged car breaking down are higher as compared to a new car.

4. Discounts

A safe driver will always receive heavy discounts on car insurance. The biggest discount offered on insurance premium is No Claim Bonus. As the name suggests, No Claim Bonus or Discount is offered when no claim is filed against a car insurance policy.

Along with driving in a safe manner, renewing your policy in time is also important. Keeping your car insured at all times will help you have a financial cover in case of unfortunate incidents.

What is a Car Insurance Premium Calculator?

Every insurance company offers a car insurance premium calculator on their website. This is an online tool which helps you deduce the approximate value of the insurance premium. Depending on the components mentioned above, the online premium calculator should be used. It proves to be very helpful in case you are buying a car insurance policy for the first time or while buying new car insurance.

Tips to reduce Car insurance Premium

With minor adjustments in your car insurance policy, you can easily buy it at the best value. However, we highly suggest you buy adequate coverage first and then adjust the cost of your car insurance policy. Here are tips to reduce car insurance premium:

1. Automobile Association of India

Being a member of any division of the Automobile Association of India may attract a discount on your car insurance premium.

2. No Claim Bonus

As mentioned earlier, driving safely will result in heavy discounts on the insurance premium. This discount can go up to 50%.

3. Install Anti-theft devices

Even if you are covered by car insurance, it is important that you take safety measures for your car. This could be done by installing anti-theft devices in your car. Your insurer may offer a discount on the premium if such safety devices are present in the car.

Also, read: Cheapest Car Insurance - Is it Good Or Bad?

The Bottom Line

Calculating the cost of car insurance policy before buying the actual policy will give you an idea of the amount you need to spend on insurance. Renew the policy at least 30 days before expiry to avoid missing the date and losing the No Claim Bonus.


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