Decoding the Calculation Behind Your Basic Own Damage Premium

The basic damage premium is a significant part of the cost when you purchase a car insurance policy. This premium is the desired amount you need to pay to protect your vehicle from damage, be it from theft, fire, accident, or other natural disasters. However, the calculation of the premium amount for own damage insurance is unknown to many people and can be confusing at times. 

Knowing how to calculate your damage premium will enable you to make smart decisions and save a significant amount on your car insurance. Continue reading this blog to learn about the premium calculation.

Own damage (OD) premium is the required amount you pay for the own damage insurance you have opted for to protect your vehicle from damage caused by theft, fire, accidents, and natural disasters. The premium amount to pay is determined considerably based on the vehicle type you own, how old the vehicle is, and the city where you are using the vehicle. 

Irrespective of the premium amount you pay, every own-damage car insurance policy protects you under the following circumstances:

Opting for an own damage premium is not mandatory. However, purchasing the right policy might assist you financially in covering accidental damage and damages caused due to man-made and natural disasters. For accurate calculation of own damage insurance, the factors to consider include Insured Declared Value (IDV), add-ons, and no claim bonus, if there is any. 

Here is the formula to follow for the calculation of the own damage premium amount:

Own damage premium = IDV * Premium rate (as provided by the insurance provider) + Add-ons – (No claim bonus, if any)

Let's look into the example below to understand the accurate calculation of the own damage premium for a new vehicle.

Suppose the ex-showroom price of a vehicle is Rs. 10,00,000 and IDV is Rs. 9,00,000 (including depreciation). 

Calculation of premium:

Premium rate for own damage insurance: 2.5% of IDV

Own damage premium is represented as: IDV*Base rate

Considering this formula, 

Own damage premium = Rs. 9,00,000 * 2.5% = Rs. 22,500

Considering add-ons and discounts:

If you choose zero depreciation coverage, the premium amount will increase further by another Rs. 5,000

On the other hand, if there is a no-claim bonus (NCB) of 20% from the earlier policy, the premium amount is expected to be reduced by Rs. 4,500

Calculation of final premium:

Basic own damage premium amount = Rs. 22,500

Additional coverage for zero depreciation = Rs. 5,000

No claim bonus discount amount = Rs. 4,500

Taking into consideration the own damage premium formula, 

Final premium amount for own damage insurance = Rs. 22,500 + Rs. 5,000 – Rs. 4,500 = Rs. 23,000

This example thus provides an analysis of different factors contributing towards the calculation of your own damage premium in car insurance, providing you with a detailed idea of potential costs associated with your vehicle insurance. 

Here are the factors to consider that affect the damage premium applicable for both two-wheelers and four-wheelers:

Overall, understanding how basic damage premiums are calculated enables you to analyse the costs and how to reduce them over time. Factors such as age, size of engine, value of car, and location all play an important role in determining the premium amount.