A car insurance is mandatory in India as per the Motor Vehicles Act. The cover is generally valid for an year from the time of activation. The policy should be renewed by paying a premium just before the expiration. The premium amount varies from car to car, depending on multiple inputs such as the age of the vehicle and other factors determined by the insurance company from time to time.
As an educated buyer, you should know the factors that go into calculating the premium value. This article will will throw light on the most prominent constituents which determine the final amount payable by the insured member to the insurance company towards buying a new policy or renewing an existing one.
Insured Declared Value (IDV)
Perhaps, the most important determinant of the premium value. This is an amount the insurance company will pay the insured member in case of total loss. The IDV itself is determined on the basis of the age of the car, claims made during the specific year, etc. For new cars, the IDV is calculated on the ex-showroom price of the car and subsequently, determined by the operational wear & tear and depreciation, year on year. Accessories installed in the car such as anti-theft devices and infotainment system are also considered towards the overall IDV and the value depreciates each year with the value of the car. This method of calculating the IDV is only valid for 5 years from the date of purchase after which the value is determined on the basis of an agreement between the insurer and the insured member.
Cubic Capacity of the Car
The cubic capacity of the car’s engine also has a say in determining the premium amount. The thumb rule is, the amount gets bigger with a higher engine capacity.There are fixed slabs on the basis of which the calculations are made.
Other key determinants are the make, model, geographical zones, modifications/alterations carried out and others.
GST Update: GST of 18% is applicable on car insurance effective from the 1st of July, 2017