April 22, 2024

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This Is How the Premium of Your Car Insurance Policy Is Determined

Car Insurance


The importance of a car insurance policy is unparalleled. While it provides dual benefits of legal compliance and protection, it can often bewilder buyers as to how are the prices based. Moreover, the premiums are different for different buyers and there is no one reason for such differential pricing. To answer the question as to how the premium of a car insurance policy is determined, continue reading ahead.

Car insurance premiums are not based on one single factor, but many factors in combination. Based on the statistical evaluation of the risks a buyer is exposed to, an actuary determines the premium which is charged. This article describes the different factors that determine the insurance premium:

Policy coverage

The primary determinant of your insurance premium is the coverage of your policy. Car insurance plans are available in two types—third-party plan or a comprehensive cover. A third-party policy is the minimum mandate as per the Motor Vehicles Act. This policy provides coverage against damages that a third person sustains in the event of an accident or collision. In addition, injuries to such third person in form disabilities, hospitalisation and event death is covered by the policy.

Contrary to a third-party plan, a comprehensive plan can be purchased that includes own-damage coverage. With such comprehensive policy, repairs to your vehicle are also include in the policy’s scope. Thus, providing an all-round coverage. Depending on the coverage, the premium is decided and hence, a third-party plan has pocket-friendly premiums. While comprehensive policy with a broader coverage for perils have steeper premiums. * Standard T&C Apply

Add-ons covers

Comprehensive plans can be customised to fine tune your coverage using add-ons. These add-ons are optional features that can be chosen at car insurance renewal or purchase.Since they are optional add-ons, they impact the premium of your policy directly. Thus, the more add-ons you opt, the higher is your premium. Also, depending on the price of such add-on, the premium increases. Zero depreciation add-on, engine protection cover, 24X7 roadside assistance cover are some of the popular add-on that can be opted for. However, selection of these add-ons must be based on your requirement in which a tool like car insurance premium calculator can come handy. * Standard T&C Apply

Registration location

Depending on the zone where your car is registered the insurance premiums are impacted. These car insurance premiums are price based on two zones—Zone A and Zone B. While Zone A includes eights metro cities of Mumbai, Delhi, Chennai, Hyderabad, Bangalore, Kolkata, Ahmedabad and Pune, Zone B covers all other regions of the country. Considering the traffic situation in these zones, high density of vehicles, and other risk factors like theft and damages, the premiums in Zone A are priced higher as compared to Zone B. Thus, the registration location plays a crucial role in determine the premium of the policy.

Model and make of the car

Vehicles are granted safety ratings based on certain tests that manufacturers are required to conduct. Deepening on the safety rating of your car, insurance companies base the premium for your policy. Moreover, different model and makes by the same manufacture have varying safety features that impact the premium.

These are some factors based on which the premium is decided for your insurance policy. So, the next time you are shopping for a car insurance policy, keep them in mind to understand which factors can be tweaked to impact the premium.

Also remember, insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms and conditions, please read sales brochure/policy wording carefully before concluding a sale.