This is how your auto insurance premium is ascertained

Adhil ShettyBankbazaar.comAuto insurance is a legal as well as an essential requirement for all vehicle owners. If you have been wondering how car insurance premiums are calculated, here is everything you need to know.Understanding car insuranceWhen it comes to offering a protective cover for your car in case of damage, theft or loss, a car insurance policy is your vehicle’s best friend. It also compensates for third party damage caused by careless driving. There are essentially two types of car insurance plans—comprehensive car insurance and third party insurance. Third party car insurance is mandatory for all vehicles as per law, while comprehensive car insurance is optional for old cars.Comprehensive car insurance: How the premium breaks upA comprehensive car insurance plan has two essential components. These include own damage (OD) premium and third party (TP) premium.Own damage premium: The own damage premium is the part of premium fixed as per the Insured Declared Value (IDV) of your vehicle. The IDV is calculated after taking into account the value of the vehicle after depreciation. The IDV can be increased if the car owner wants a higher level of protection for his vehicle, but the premium in that case would proportionately increase.Third party premium: Third party premiums are fixed by the insurance regulator and depend on the volume or the cubic capacity of your vehicle. Below are the third party premium rates for vehicles effective from April 1 2015.Car Volume TP Insurance rates (Rs.) as on April 1, 2015Factors that affect car insurance premium1. Insured Declared Value (IDV): Car insurance is a type of indemnity policy where the total compensation is directly linked with the value of your vehicle, based on its age and model. The Insured Declared Value is the maximum amount that you can claim under a policy.A new car just out of the showroom will have a higher IDV. As your car ages, the IDV takes into account its depreciation value. The IRDA offers a calculation chart for depreciation which is used by insurance companies to arrive at the IDV value for older cars. Depreciation Percentage to calculate IDV2. Cubic Capacity: The capacity of your car’s engine is also a factor when it comes to calculating the insurance premium. The higher the cubic capacity (cc) value of your car engine, the higher the premium amount. The Indian Motor Tariff Act has stipulated basic minimum amounts as car insurance premium for vehicles with different cubic capacities.Premium calculations taking into account the cc of your car’s engine are divided into 3 slabs:• Cars with a cubic capacity less than 1000cc• Cars with cubic capacity between 1000-1500cc• Cars with cubic capacity above 1500cc3. Geographical location: Your geographical location has a say in how much car insurance premium you end up paying. India is divided into 2 zones namely zone A and zone B depending on the risk faced by motorists. Zone A cities have a higher premium than cities in Zone B. Zone A comprises cities like Mumbai, New Delhi, Bangalore, Chennai, Kolkata Ahmedabad, Hyderabad and Pune. Zone B includes the rest of India.4. Age of the vehicle: The age of the vehicle plays a significant role in determining the final premium amount. With time, as the vehicle depreciates in value, insurance companies offer lower premium as the insurance cover gets reduced proportionally. If your car is more than 5 years old, then the insurance company decides on the cost of your car based on its condition, before determining the final premium amount.5. No Claim Bonus (NCB): If you do not make an insurance claim for one year, you are eligible to get a No Claim Bonus, which offers you a discount on your premium. By not claiming insurance, you can have a NCB discount of 20% from the second year, which will be deducted from the OD premium. NCB can go up to 65% based on number of claim-free years you ensure, thereby reducing your premium costs substantially.6. Other factors: There are other additional factors considered for insurance premium calculations. Installation of anti-theft devices, being registered members of some automobile associations, use of CNG or LPG kit are also important factors that insurance companies take into account when calculating the final premium amount for your car.Insurance premium calculation makes use of all the factors mentioned above to arrive at a final premium amount. Depending on the above, two cars bought at the same time in different locations or with different cubic capacities may have to pay different premiums for insurance.