The premium for a four-wheeler (car) insurance policy is determined by several factors, with each insurer using a combination of standard and personalized criteria. Understanding how the premium is calculated can help car owners make informed decisions while selecting a policy or even while making adjustments to reduce costs.
1. Insured Declared Value (IDV)
The Insured Declared Value (IDV) is the maximum sum insured that the insurer will pay in the event of a total loss (e.g., theft or major damage). The higher the IDV, the higher the premium.
- New Cars: For new cars, the IDV is usually the selling price, minus depreciation.
- Old Cars: For older vehicles, the IDV is calculated based on the current market value, which decreases over time due to depreciation.
- Impact on Premium: A higher IDV results in a higher premium because the insurer’s liability is higher.
2. Car’s Make, Model, and Variant
The make, model, and variant of the car significantly impact the premium amount. Cars with higher safety features, more expensive models, or luxury brands tend to attract higher premiums due to their increased value and repair costs.
- Luxury Cars: Luxury cars, sports cars, and premium vehicles usually incur a higher premium as their repair and replacement costs are higher.
- Car Age: The age of the car plays a significant role. Older cars are generally cheaper to insure, but they also have a lower IDV.
- Engine Capacity: Cars with larger engine capacities (higher CC) tend to have higher premiums because of the higher risk involved and repair costs associated with bigger engines.
3. Location
The region or city where the car is registered and primarily used can affect the insurance premium. Insurance companies assess the risk associated with the location, including factors such as traffic conditions, crime rates, and the likelihood of natural disasters.
- High-Risk Areas: Areas with higher incidences of accidents, thefts, or natural calamities (e.g., floods, storms) tend to attract higher premiums.
- Urban vs Rural: Cars registered in urban areas, where traffic and accidents are more common, generally have higher premiums than those in rural or suburban areas.
4. Car’s Safety Features
Cars equipped with advanced safety features, such as airbags, anti-lock braking systems (ABS), electronic stability control (ESC), and anti-theft devices, may be eligible for discounts on the premium. These features reduce the likelihood of accidents and theft, which in turn reduces the insurer’s risk.
- Standard Safety Features: Features like airbags, ABS, and immobilizers help reduce the risk, leading to lower premiums.
- Additional Security Features: Some insurance companies offer discounts for additional security devices such as GPS trackers or car alarms.
5. Driving History and Age of the Driver
The driving experience and history of the policyholder also affect the premium. Insurers evaluate the risk based on the driver’s profile, which includes:
- Age of the Driver: Younger, less experienced drivers are considered higher risk, which can result in higher premiums. On the other hand, older, more experienced drivers may enjoy lower premiums.
- Driving Record: A clean driving record with no accidents or claims typically leads to a lower premium. If the driver has a history of accidents, traffic violations, or claims, the premium may increase due to the higher risk involved.
6. Previous Claims History
Your history of making insurance claims can affect the premium amount. If you’ve made frequent claims in the past, your insurer may view you as a higher risk and charge a higher premium.
- No Claims Bonus (NCB): If you’ve not made any claims during the previous policy year, you may be eligible for a No Claims Bonus (NCB), which offers a discount on the premium. This discount can range from 20% to 50% depending on the number of claim-free years.
- Claims History: Frequent claims can lead to a higher premium in the subsequent years because of the perceived risk.
7. Type of Coverage
The type of coverage you choose also plays a significant role in determining the premium. The main types of car insurance policies include:
- Third-Party Liability Insurance: This is the minimum legal requirement in many countries. It covers damages or injuries caused to third parties in the event of an accident. This type of policy typically has the lowest premium.
- Comprehensive Insurance: Comprehensive policies provide coverage for both third-party damages and damages to your own vehicle. This is a broader coverage option and typically results in a higher premium.
- Standalone Own-Damage Insurance: This covers damages to your own vehicle, excluding third-party damages, and is cheaper than comprehensive coverage.
8. Add-ons and Riders
Insurance companies offer several add-ons or riders that provide additional coverage beyond the basic policy. While these add-ons provide more extensive protection, they also contribute to a higher premium.
- Zero Depreciation Cover: This add-on eliminates depreciation deductions from the claim settlement, which can increase the premium significantly but is useful for ensuring a better payout in case of an accident.
- Roadside Assistance: Provides services like towing, flat tire assistance, and fuel delivery. This coverage increases the premium but offers added convenience.
- Engine and Gearbox Protection: Coverage for damages to the engine or gearbox, which are often not covered under regular policies, can be purchased as an add-on.
- No Claim Bonus Protection: This add-on protects your No Claim Bonus even if you make a claim during the policy period.
9. Car Usage
How you use your car also impacts the premium. Insurers ask whether the car is used for personal or commercial purposes. Commercial use, such as using the car for business or as a taxi, increases the premium due to the higher risk.
- Personal Use: If you only use the car for personal purposes, the premium will typically be lower than if the car is used for business purposes or in a commercial capacity.
- Annual Mileage: Some insurers may take into account the estimated annual mileage. Higher usage may result in a higher premium as the risk of accidents increases with more time spent on the road.
10. Insurer’s Pricing Policy and Discounts
Different insurers may have different pricing models, which can affect the premium for the same car and coverage. It’s a good idea to compare premium quotes from different insurers to find the best deal.
- Discounts: Insurance providers often offer discounts for various reasons, such as bundling multiple policies (e.g., home and auto insurance), installing anti-theft devices, or purchasing the policy online.
- No Claim Bonus (NCB): As mentioned earlier, not making any claims during the previous policy term often results in a significant discount.
Conclusion
The premium for your four-wheeler insurance is determined by a combination of factors that assess the risk associated with insuring your vehicle. Key elements such as the car’s make and model, its age, the coverage type, your driving history, and the safety features of your car all play a role in the premium calculation. By understanding these factors, you can take proactive steps to manage and possibly reduce your premium, such as opting for a higher deductible, maintaining a good driving record, or choosing a policy with appropriate add-ons that suit your needs. Always compare multiple insurance providers to ensure that you get the best value for the coverage you need.