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These days, owning a car has become a necessity than a luxury. Necessity of this valued asset has triggered the need of insuring it completely. It’s essential to have a comprehensive insurance coverage for the valued asset that we own. Price for such coverage varies among insurers. You must be wondering why there is such difference in price among insurers. Would you like to know how these premiums are calculated? Here we go! 

Firstly, let’s break down each component of insurance cost and then go through the influence of some key elements on pricing to simplify the calculation

Components of Insurance premium:
  • The rate fixed by Insurance Regulatory and Development Authority of India (IRDA) for providing legal liability against the loss/damage caused to third person and his property during an accident. 
  • Premium fixed by insurer basis various factors for own damage cover. Own damage cover includes complete coverage for you and your vehicle. 
  • Discounts offered by the insurer basis the information provided by you. And no claim bonus benefit offered to customers at the time of renewal.
To put it in a simple way, for any comprehensive car insurance-

Premium = Third party liability premium (standard as fixed by IRDA) + Own Damage Premium – discounts and benefits offered by the insurer.

Factors that Influence Premium Calculation

There are some basic elements and information taken into consideration by your insurer to determine your motor insurance premium. Some of the major factors are mentioned below:
  • IDV (Insured Declared Value) of your Car: Under the comprehensive motor insurance, if there is any theft or total loss suffered due to accident, maximum compensation that can be made is based on the value of your vehicle at that particular point. That means, insured declared value is the currentmarket cost of your four wheeler at the time you apply for car insurance. In case you are buying insurance for a new car, its ex-showroom price is considered for calculating IDV. In case of renewal of car insurance, IDV is calculated after taking into consideration of depreciation for the vehicle age. Hence, higher the insured declared value higher is your insurance premium and vice versa. Own damage premium is calculated based on your car’s IDV. 
  • Engine Capacity of your Car: Engine capacity is also termed as cubic capacity. Insurance regulator IRDA has fixed third party liability motor insurance premium based on the cubic capacity of the vehicle. Here is the current chart of premium rates:
Third Party Insurance Rate
Car Type
Engine Capacity
Premium Rate
Small-Segment Cars
< 1000CC
Rs. 2055
Mid-segment Cars
1,000CC - 1,500CC
Rs. 2863
Premium Cars
> 1500CC
Rs. 7890
  • Geographical Belt: The location of registration of your vehicle matters a lot when it comes to premium calculation. Insurance companies decide the premium to certain extent depending on the kind of risk that your car has in the locality. Being heavily populated Metros and big cities like Bangalore, Mumbai, Dehli, Kolkata, Chennai, Hyderabad, Pune and Ahmedabadetc are more prone to accidents and theft. Hence, the car insurance premium for such cities is relatively higher. For all the other areas which are not-so risky premiums are relatively lower. 
  • Age of your Car: Your car’s value reduces with its age. New models come out each year in the market and the older models’ value gets reducing. Depending on the car’s model, insurer calculates the price taking into account of the general wear and tear and the age of the vehicle. Insurance companies have a schedule for depreciation for the first 5 years of new car. However, after the 5th year, the price depends on the mutual understanding between you and the insurer.
Discounts and Benefits Considered for Premium Calculation 
  • Professional Discount: Insurance rates are calculated based on your occupation too. If you are into occupation that needs you to be on the road most of the time, you are most likely to be charged with higher premium. Professionals like nuns, doctors and police officers are likely to get a good insurance rate as they are considered to be good and safe drivers. 
  • Installation of Safety Gadgets: Installing safety devices like anti-theft devices can get you some discount on premium as chances of risk are less. 
  • No Claim Bonus: It is a reward from an insurer for claim-free record during policy period. It ranges from 20%-50%.Your premium can be reduced to that extent when you claim your no claim bonus.

To conclude, motor insurance premium is calculated by insurer after taking into consideration of many factors and information provided by you. Hence, declare correctly and do your best to lower the rate which can benefit you both in the way of quality coverage and affordability.