What is Car Insurance Premium?
A car insurance premium is the amount you pay to an insurance company to keep yourRead more
Components of Car Insurance Premium
The insurance premium for a car is not just one fixed amount but consists of different components, as shown in the table below:
| Component |
Description |
| Third Party (TP) Premium |
Amount paid towards the mandatory policy that covers your legal liability for injury, death, or property damage caused to a third party |
| Own Damage (OD) Premium |
Covers damage to your insured car caused by accidents, theft, fire, floods, earthquakes, riots, and other covered events |
| Add-on Covers Premium |
Additional premium paid for optional covers such as Zero Depreciation, Engine Protection, Roadside Assistance, Return to Invoice, etc. |
| Personal Accident (PA) Cover |
Covers the owner-driver against accidental death or permanent disability, wherever applicable |
| GST |
Goods and Services Tax charged on the final car insurance premium |
The total amount you pay for your policy is the sum of these parts together. While some components are mandatory, others depend on the type of policy you choose. For example, third-party insurance includes only the mandatory third-party premium set by IRDAI. A comprehensive policy combines the third-party premium with the own-damage premium and the cost of any selected add-on covers.
How Do Insurers Decide Your Car Insurance Premium Cost?
Car insurance companies calculate your premium cost by assessing the level of risk associated with your four-wheeler. They generally consider the following factors:
- Insured Declared Value (IDV): A higher IDV means a higher own damage premium.
- Vehicle Age: As a car gets older, its market value decreases, which may reduce the own-damage premium.
- Make and Model: Luxury or high-performance cars are generally costlier to insure.
- Registration Location: Cars registered in areas with heavy traffic or higher accident rates face increased premiums.
- Policy Type: Comprehensive car insurance costs more than a third-party policy because it provides wider coverage.
- No Claim Bonus (NCB): Discounts on the own-damage premium for maintaining claim-free years.
- Add-on Covers: Optional covers you can choose for an additional premium that provide enhanced protection.
- Voluntary Deductible: A higher deductible lowers your own damage premium since you agree to bear a larger share of repair costs at the time of claim.
- Claim History: Frequent claims may increase your future premium costs.
After applying eligible discounts, such as the No Claim Bonus (NCB), along with applicable taxes, the final car insurance premium calculation is based on the following formula:
Total Premium = (Own Damage Premium - Discounts/NCB) + Third-Party Premium + Add-ons + GST
*Note: Car insurance premiums may vary even for the same car since every insurer has its own underwriting rules.
What is the Basic Premium in Car Insurance?
The basic premium in car insurance is the amount you pay for standard insurance coverage (third-party liabilities) before any add-on covers, discounts, or taxes are applied. It serves as the starting point for determining the total premium payable under your policy. The final premium may increase or decrease depending on the add-ons you choose, your NCB, voluntary deductible (if any), and other applicable taxes.
Ways to Keep Your Car Insurance Premium Affordable
Although several factors influence the insurance premium for your car, there are a few simple ways to keep it affordable without compromising on coverage. Have a look:
- Maintain a claim-free record: Avoid making small claims whenever possible so you can earn NCB. It helps reduce your own damage premium over time.
- Compare Multiple Plans: Compare premiums, coverage, and benefits offered by different insurers before buying or renewing your policy to find the best value.
- Select Add-ons Wisely: Pick car insurance add-ons that match your driving habits and car, not all the available options.
- Choose a higher voluntary deductible: If you're comfortable paying a larger share of repair costs during a claim, choosing a higher voluntary deductible can lower your premium.
- Install anti-theft devices: Fitting ARAI-approved anti-theft devices in your car can reduce your premium, as they lower the risk of vehicle theft.
- Timely Policy Renewal: Renewing your car insurance before expiry prevents a break in coverage and helps you retain your accumulated NCB, which may otherwise increase your premium.
Also read: Tips To Reduce Car Insurance Premiums During Renewal
Wrapping Up!
Insurance premiums vary widely among insurance providers, so it is advisable to get several quotes from various car insurance companies before making a final purchase. You can compare plans of multiple insurers on Policybazaar.com and choose the one that offers you the desired coverage.
