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How To Calculate Car Insurance Premium
Feb 2, 2021

How To Calculate Car Insurance Premium?

As a proud owner of your car, you wouldn’t like it to get damaged, and you would definitely not like paying for the damages. That is why we have car insurance that helps you prepare for the unforeseeable. But how confident are you about your car’s insurance plan?   It’s not surprising that a sizable portion of car owners don’t know how is car insurance calculated. Most insurance plans involve a multitude of factors such as the car’s model, cubic capacity, etc.   This makes it a bit difficult to understand what all benefits are you availing in return for your monthly insurance premium. Sure, you’d know the maximum cover value or when is the insurance expiring, but there’s a lot more to it.   Let us shed some light on how to calculate car insurance premium and the factors affecting it.  

Factors Affecting Car Insurance Premium

The insurance premium is a product of a combination of factors that you must know about. The better you understand the factors, the better deal you’d be able to purchase.  

Car Type and Model

It’s a well-established fact that the premium for a Honda City isn’t the same as a Maruti Alto. This is because the car’s engine (Cubic Capacity) counts when choosing a third-party cover. Similarly, the configuration of the car is considered while deciding on the premium amount.   This may include the car’s make, model, fuel type, and security features in your car. The final value also changes with the type of insurance you’ve opted for.  

Location of Insurance

The region or city wherein the insurance is bought has a role to play in calculating the premium. Usually, metro cities and tier 2 cities invite a higher premium because of the driving conditions. Higher traffic, road quality, vandalism, and theft rates contribute to a surge in car insurance prices.  

Insured’s Declared Value (IDV)

IDV is the market value of your car at the time of purchasing car insurance. How to calculate car insurance premium with IDV? In most cases, the insurance agent will carry out an audit for determining the exact market value. You’ll then be given an insurance premium amount on the spot. The IDV depreciates with time.   IDV = Ex-Showroom price + price of accessories – depreciation value as per (IRDAI)

Coverage Type

Coverage type refers to the insurance plan you’ve opted for. Under the Comprehensive Cover, the insurance premium will vary according to the company you’re purchasing insurance from.   In the case of third-party Insurance, the premium price is regulated by the Government and is a stabilized value.  

Key Components of Car Insurance Premium


Own Damage Premium

Own Damage, as the name suggests, is the share of the premium paid by you. It covers a variety of damage costs that arise from natural calamities, vandalism, theft, or accidents.   This kind of premium is subject to the insurer’s product loss ratio. Simply put, each company has its own policies for Own Damage premium. You’ll also be given discounts as dictated by the insurer.


Riders or Add-ons are the additional benefits or covers that you subscribe to, in your car insurance plan. These riders could be anything from additional Gearbox Protection to PA cover for passengers. The more Add-ons you include in the policy, the higher the amount of premium becomes.

Compulsory Personal Accident Cover

As per the latest notification by the Government of India, car owners need to have personal accident insurance. This has been made mandatory to protect the interest of car owners against the rising incidents of car accidents.

Third-Party Liability Premium

Third-Party Insurance (TPI) or Third-Party Liability Premium protects you from the damages incurred to a third party if an accident takes place. Third parties are vehicles, buildings, and people who might get hurt by your vehicle.   This component of the car insurance plan will pay for the damages incurred to them. It was established under the Motor Vehicles Act in India.

How is car insurance calculated?

The final premium is a sum of all the four key components we have discussed in this article and can be determined with a car insurance premium calculator. There will be variations as per the rules set by your insurer. It’s safe to get a thorough understanding of the premium calculation before you purchase.  


Understanding your car insurance plan and the monthly premium deeply will help you cut down on the unnecessary parts. It will also give you more clarity on what coverage you’re eligible for, and what happens when you need to claim the insurance. Be a smart buyer by staying well-informed of the rules.

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