In India, according to the law, it is compulsory to insure your car. The compulsory nature helps in protecting you against any third party liabilities, which are financial losses caused by accident, damage or theft. Also while driving a car you are responsible for the safety of your passengers, pedestrians, other people’s property and yourself. Insurance also helps in covering the costs of potential damages or injuries caused in case of a mishap.
There are two types of Car Insurance provided in the Indian Market: Comprehensive Insurance and Third Party Insurance.
Comprehensive Insurance is taken when one wants to reimbursed for damages to oneself, one’s co-passengers and the vehicle in addition to the third party coverage.
Whereas Third Party protects the owner against any damages which may occur as a result of death or physical injury to a third party or any damage that may happen to its property. It is compulsory by the Indian Law to have this kind of insurance.
While buying insurance for your car, you may be offered bonuses and discount to entice and hook you in, but insurers usually pre-calculate a fixed premium that they want to charge you and then offer you a discount on a value above that. Ever wondered what all factors go into determining the insurance premium for your car?
There are many factors which go into the calculation of car insurance premium. Some of the important points regarding car insurance are listed below.
Insured Declared Value (IDV)
From the day a car is rolled out of the showroom by the owner its value starts depreciating. It is very obvious that the value of a car which is two days old would be much more than one which has been on the roads for say three years. This value when determined by insurers is called the Insured Declared Value (IDV) and it is the value the insurance company places on your car when you apply for vehicle insurance. IDV is the maximum amount you can claim under car insurance policy to compensate for any third party liabilities (as mentioned above) that may arise. If you have added any extra accessories like music systems, leather covers etc. then the value for these gets added separately to the IDV by the insurance company (after adjusting for depreciation).
When you buy a new car the IDV is calculated on the basis of the price of the car i.e. its ex-showroom price. In case you are renewing the insurance, then the IDV will be adjusted for any operational wear and tear that the car has experienced.
NCB and its Calculation
NCB, or No Claim Bonus is available for those who have not made any insurance claims on their vehicle. It is a discount on the premium which is calculated as below:
| First Year | 0% in OD amount (Own Damage Premium Amt.) |
| Second Year | 20% in OD amount |
| Third Year | 25% in OD amount |
| Fourth Year | 35% in OD amount |
| Fifth Year | 45% in OD amount |
| Sixth Year | 50% in OD amount |
While IDV is calculated depreciation on the metal parts is taken into consideration and is calculated as below:
| Zero to Sixth Month | 0% |
| Seventh Month to First Year | 5% |
| First Year to Second Year | 10% |
| Second Year to Third Year | 15% |
| Third Year to Fourth Year | 25% |
| Fourth Year to Fifth Year | 35% |
| Fifth to Tenth Year | 40% |
| More than Ten Years | 50% |
Cubic Capacity of Vehicle
Cubic Capacity of your car comes into picture when you are going in for a third party insurance cover. Here the size of the engine functions in as a factor in determining the premium for the insurance. Age of the car does not matter as the size of the engine remains the same with age.
Coverage and Deductibles
Vehicle insurance providers allow you to choose your deductibles and decide whether you want to add extra coverages in your car’s insurance (which are not compulsorily required by the laws of your country). These specifics pay an important role in defining your monthly payments to the insurance company. Simply put, the higher the deductible you choose the lower would be the monthly payment. Choosing extra coverage does give you more financial protection against third party liabilities but on the other hand would also increase your monthly payments by a good margin. This is a factor which is under your control. Here in India, the normal standard for deductibles is Rs. 500 for commercial vehicles and private four wheelers and increases depending upon the cubic capacity of the vehicle.
Driving Records
Again this is something very much in your control. Drivers who have a past record of having been in or caused accidents would have to pay more in comparison to those with a clean record of no accidents for several years which is a good check on reckless drivers. Even if you have a past record of accidents driving safely now could mitigate the effects caused by your previous recklessness.
