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Understanding the process of Car Insurance Premium Calculation

Rajesh and John are colleagues working in the same MNC in Tier 1 city decided to purchase a car. Rajesh was fond of Mahindra Brand so he chose to purchase 2000cc car with advanced features in the price range of Rs.8 Lacs, while John being a mileage minded person opted for Maruti Brand with the price of Rs.8 Lacs. Even though both of them spent the same price for purchasing the car the insurance premium paid by Rajesh was 30% higher than that of John’s. This made him search for the factors that decide the car insurance premium.

Below are the factors which decide the car insurance premium and you can calculate the insurance premium for car in our website by entering the details in the RC copy.

1. Make & Model:

The Make of the car is the Brand such as Maruti, Mahindra, Audi and Mercedes etc while the Model is the Ciaz, Scorpio, A5 and C220 etc. The premium varies for each Make and in turn for each model.

The variation is due to the loss ratio of the insurance companies with these particular make & models.

The other reason could also be the cost incurred to replace the parts at the time of damage. For instance the parts of Honda are costly compared to that of Maruti. The alto car insurance is priced at Rs.2, 072 because the cubic capacity of the car is less than 1000cc as per the IRDA circular. These extra costs reflect in the premium paid by the insured.

2. Insured Declared Value:

IDV or insured declared value is the maximum value of the vehicle for which the insurance is taken and the insurer will settle the claim only up to the amount of IDV at the time of claim. For example if IDV is selected as Rs.8 Lacs, then the maximum liability of the insurer would be Rs.8 Lacs in case of a claim.

Higher the IDV, higher would be the premium. Normally for each passing year IDV will be reduced by 10% due to the depreciation of the Car.

3. Cubic Capacity:

Cubic capacity is the capacity if the engine and is described as the volume swept by the piston in the engine. The higher the cubic capacity, the greater would be the performance of the engine. The size of the engine also decides the premium to be paid by the insured.

The third party premium for car is classified based upon the engine cubic capacity and is higher for higher cc engines.

4. RTO  :

The geographical zones also decide the rate of premium to be charged. The city or town in which your car is registered can affect the amount of insurance premium you pay. India has been divided into Zone A and Zone B for the purpose of premium calculations. Metro and some state capitals fall under the Zone A while the remaining cities or towns fall under Zone B.

If there is a particular RTO zones where the insurance company experiences heavy losses, then the premium charged on all the vehicles in that particular zone would be higher than those of the other zones.

5. Age of the vehicle:

The age of your car decides the premium to be paid. Vehicles whose age falls within the first 5 years are charged high premium compared to those above 5 years age.

This is due to the fact that as the vehicles age, their value is depreciated due to the wear and tear.

6. Loss Ratio:

Loss ratio is the expressed as the difference between the premium collected and claims paid. Loss ratio is positive if the premium collected is more than the claims paid and negative if the premium collected is less than the claims paid.

Loss Ratio = Premium Collected – Claims Paid

Loss ratio is different for each company with different models of cars. For example Maruti might be a loss making model for XYZ insurance company but profit making for ABC insurance company.

For best online car insurance quotes, please visit to calculate the car insurance premium from the best insurance providers using the car insurance premium calculator.

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