Car insurance in India is mandatory for every vehicle, which is running on the roads. Generally, all new cars arrive with an auto insurance policy, which is valid for about a year and then needs to be renewed. There are several government and private firms in the nation that deal with auto insurance for every model. All the buyers of the country are aware of the fact that after availing an auto insurance policy, they have to deposit a certain amount of premium each year. This car insurance premium ensures that the system is continued without any problems. However, most of the people will be unaware of what basis is this premium calculated by the concerned insurer.
Car insurance premium
There are two types of car insurance in India – third party insurance and a comprehensive package. Former covers damages for a third party, which has undergone injuries in case of any collision, while the latter is dedicated to covering costs for the insured vehicle as well as the liability (third party). The premium for car insurance in India is calculated based on Insured Declared Value (IDV) of the specific model, No Claim Bonus (NCB) and any other discount/offer included in the scheme. Interestingly, all these 3 factors are used to calculate the comprehensive premium/package and are not applicable for the liability or third party. The Insurance Regulatory and Development Authority (IRDA) decide the insurance premium for liability and may change it accordingly.
To calculate the car insurance premium, first, the IDV of the model is examined by the insurer. The IDV is based on the ex-showroom of the car and changes annually as per the depreciation rate of a particular model. This depreciation rate for cars is as follows:
5 percent for a car not exceeding 6 months
15 percent for a car exceeding 6 months but less than 1 year old
20 percent for a car exceeding 1 year but less than 2 years old
30 percent for a car exceeding 2 years but less than 3 years old
40 percent for a car exceeding 3 years but less than 4 years old
50 percent for a car exceeding 4 years but less than 5 years old
For the used cars, which have exceeded 5 years, the insurance premium is calculated on mutual consent between the insured and the insurer. After calculating the IDV, the NCB of the car is calculated based on claims made by the insured person in the previous year. A person is entitled to a No Claim Bonus if he/she has not made any single claim in the last year of the auto insurance policy. In case, the NCB gets accumulated for more than a year; chances are that a person might avail a vast 50 percent discount on the overall premium amount.
There are also few other discounts and offers an insured buyer is entitled to apart from the NCB. These benefits are given to a car owner in case he/she integrates the vehicle with an anti-theft device or obtains membership of Automobile Association of India (AAI) or opts for a voluntary deductible. Also, if there are any additional accessories in the car that are not involved in the selling price or catalog of the manufacturer, the premium of such features will be calculated separately. After maintaining and calculating all these records, the car insurance premium for each model gets generated every year.