How is a car insurance premium calculated? 


Purchasing a car insurance cover for your motor vehicle is a necessity and along with this purchase comes the yearly payment of your car insurance premium. An insurance premium is an amount you pay to your insurance service provider on an annual basis or depending on the term specified in the contract for protecting yourself from expenses should your car be damaged.

While there are standard insurance plans with a specified premium amount, your premium amount might be different than that of another policyholder because the specifications and coverage plans might differ. What are the factors kept in mind while calculating your premium? Once you know what is taken into account while determining the premium amount you will pay for your car insurance policy, it will be easier to understand how car insurance premium is calculated. Different factors that are taken into consideration when you purchase car insurance and these factors play an essential role in determining your premium rate.

For starters, your car insurance premium is a sum of three different types of covers including – Own Damage Cover, Third Party Cover and Personal Accident Cover. 

Factors that determine your car insurance premium 

Make and model of the car 

Fancier the car, the higher your insurance premium. So, if you are looking to purchase a high-end sedan or SUV, your car insurance premium will be higher in comparison to the amount paid for a smaller car like a hatchback.

Policyholder’s residence 

If you reside in a large city where the traffic density is higher in comparison to a small town, the premium amount will be higher.

Fuel used in your car 

The type of fuel used in your vehicle is also an essential factor in determining the premium on your car insurance. A car that runs on petrol or diesel will be charged at a lower premium than a car that runs on compressed natural gas. (CNG)

Year of manufacture 

An older version of a car will be charged at a lower premium than a newer version. For instance, if you wished to buy insurance of a Honda Amaze that was manufactured in 2016, the premium would be lower compared to premium for Honda Amaze manufactured  in the current year.

Security measures 

If you have beefed up the security measures on your car including a car alarm or anti-theft device, your premium amount will be much lower as compared to a car that doesn’t have any security measures.

No claim bonus 

Insurers allow you to claim anywhere between 10% to 50% of your premium amount if you are entitled to a No Claim Bonus.

Amount deductible 

A deductible is a pre-specified amount of money that the policyholder is liable to pay in case of a claim – this is before the insurance company settles the rest of the amount. Higher the deductible, lower your premium amount.

How does a car insurance calculator calculate your premium

Once you submit specific details to the calculator including date of registration, details of the car, start date of the last policy, as well as other details of the coverage, the calculator will be able to determine the premium amount on your car insurance policy.

Online calculators are most useful when you wish to make an informed decision about buying car insurance.