How Motor Insurance Premiums Are Calculated (Car & Bike)?

Insurance today is not a new term for anyone in the country. People have been availing the benefits of different insurance types. Life insurance, general insurance, and motor insurance are the most popular insurance types. In the motor insurance category also, the most popular are car insurance and bike insurance.

In this blog, the content revolves around the way premiums for car or bike insurance are calculated. You will find information about the same here along with a brief on motor insurance, its importance, types, factors affecting Motor Insurance premiums, ways to reduce your premium, additional tips, and more. Read the complete blog for more information.

What is motor insurance?

Motor insurance is a kind of legal contract between two parties, in this case between a vehicle owner and the insurer. Motor insurance is also termed auto insurance, or vehicle insurance. It provides a user with a host of benefits against the annual premium paid using any mode of payment. It provides risk cover against natural and manmade calamities.

Why is it important?

Driving on roads without valid insurance is an illegal act and is subject to heavy fines and imprisonment. Third-party liability insurance is mandatory to safeguard the interest of third-party persons or properties who may not be at fault. The reason is, that in many accidents, it has been noticed that third-party persons have experienced physical injuries, loss of life, and damage to properties. However, the vehicle involved in the accident does not have a valid risk cover to compensate for the losses. So, the government of India has made it mandatory for all types of vehicles to get Third-party liability insurance. 
Also, comprehensive car insurance provides financial protection against theft of vehicles, physical damage, and loss due to floods, earthquakes, riots, violence, and other unexpected incidents.

Types of motor insurance

1. Car insurance
2. Bike or two-wheeler insurance
3. Commercial vehicle insurance

Based on Risk Cover, there are two prevalent insurance covers –

1. Comprehensive policy:

• Complete protection as it covers both own damage and third-party liabilities.
• It provides you with financial protection against manmade and natural calamities.
• Any kind of loss or damage is managed by the insurer.
• Add-ons - the option to choose add-ons for additional protection against unforeseen incidents.
• Claims - you enjoy hassle-free claim settlement options avoiding inconveniences.

2. Third-party policy:

• Covers damage to third-party property
• Covers bodily injury to third-party individuals in case of an accident.
• You get limited risk coverage.
• There is no compensation for damage caused to your vehicle, car or bike.

How do insurance companies calculate premiums for Car Insurance and bike insurance?

Generally, we hear an amount as a payable premium but we do not bother to understand how the amount was calculated or arrived at. Companies engaged in the business of insurance consider certain points that play the role of decision-making factors, namely Personal accident, Own damage cover, Third-party cover, and Riders. Apart from these, there are a few more factors that have a direct impact on the premium calculation.

Factors Affecting Motor Insurance Premiums

For Car Insurance:

1. Insured Declared Value (IDV): This is the estimated market value of your car. It's calculated based on the showroom price and depreciation. The higher the IDV, the higher the premium.
2. Third-Party Liability (TPL) Cover: This is mandatory and covers damages to third-party property and injuries to third-party individuals in case of an accident. The premium is fixed by the Insurance Regulatory and Development Authority of India (IRDAI).
3. Own Damage (OD) Cover: This is optional and covers damages to your own car. The premium is calculated as a percentage of the IDV.
4. No Claim Bonus (NCB): If you haven't made any claims in the previous year, you get an NCB discount. This discount increases with each claim-free year.
5. Add-ons: Optional covers like personal accident cover, roadside assistance, etc., increase the premium.
6. Other Factors: Your location, the type of car, and your driving history can also affect the premium.

The Formula Used - Car Insurance Premium = Own Damage Premium - (NCB + Discounts) + Third-Party Liability Premium

For Bike Insurance:

1. Cubic Capacity (CC): The engine capacity of your bike determines the base premium for third-party cover.
2. Third-Party Liability (TPL) Cover: This is mandatory and the premium is fixed by IRDAI based on the bike's CC.
3. Own Damage (OD) Cover: This is optional and covers damages to your bike. The premium is calculated based on factors like the bike's make, model, age, and your location.
4. No Claim Bonus (NCB): Similar to car insurance, you get an NCB discount for claim-free years.
5. Add-ons: Optional covers like personal accident cover, roadside assistance, etc., increase the premium.

The Formula used - Bike Insurance Premium = Own Damage Premium - (NCB + Discounts) + Third-Party Liability Premium

Key Factors Influencing Motor Insurance Premiums:

How to Reduce Motor Insurance Premiums

• Opt for a Higher Deductible: Understanding the trade-off between premium and deductible
• Maintain a Good Driving Record: Avoiding accidents and traffic violations can lower premiums
• Compare Quotes from Multiple Insurers: Utilizing online comparison tools to find the best deal
• Choose a Comprehensive Policy with Essential Add-ons: Balancing coverage needs with premium costs
• Renew Your Policy on Time: Timely renewal can often lead to discounts

ABOUT THE PREMIUM CALCULATOR ONLINE

Many service providers have facilitated the PREMIUM CALCULATOR online for customers' convenience. Any user can enter the necessary information to know the estimated car premium

Let us have a quick tour of the steps and learn how to use them.

• Step 1: Visit the website of the insurer and look for the Premium Calculator.
• Step 2: Enter information about your vehicle: You may be required to enter the car’s make, model, variant, registration year, and location of use.
• Step 3: Choose coverage options: Here you will have the option to make a choice from third-party liability, comprehensive coverage, or add-ons including zero depreciation, engine protection, and others based on your requirements.
• Step 4: Now enter your necessary details: Here, you may be required to enter information related to age, driving history, and claim history. Do you know these details help an insurer assess the level of risk and manage the premium accordingly?
• Step 5: Now take the quote: After entering all the necessary information, the motor insurance premium calculator will generate an estimated premium. The quote that you received may help you make better decisions.
• Step 6: Adjust and compare: The quote that you get can be used to make comparisons online. On the basis of comparison, you can adjust your input for the pocket-friendly quote considering your financial conditions and the level of risk coverage.

Additional Tips for You:

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Concluding Thought

Understanding how motor insurance premiums are calculated can help you make informed decisions. By considering factors like your vehicle's details, your driving history, and the specific coverage you need, you can find the best policy at the right price. Remember, it's always a good idea to research around and compare quotes from different insurers to get the best deal. At InvestKraft, you get the option to choose from the various insurers and save on your car insurance premium and bike renewal insurance premium.

Don't hesitate to consult with our experts for personalized advice.

FREQUENTLY ASKED QUESTIONS (FAQs)

Q1. How does the Insured Declared Value (IDV) affect premiums?

IDV is the estimated market value of your vehicle. A higher IDV means a higher premium, as it reflects a higher potential claim amount. It's crucial to choose the right IDV to balance premium costs and adequate coverage.

Q2. Does the geographical location impact insurance premiums?

Yes, geographical location plays a significant role. Metropolitan cities with heavy traffic and higher accident rates generally have higher premiums compared to rural areas.

Q3. How do insurance companies calculate the No-Claim Bonus (NCB)?

NCB is a discount offered for each claim-free year. The percentage of NCB increases with each consecutive claim-free year. It's a significant factor in reducing premiums.

Q4. What is the impact of third-party liability coverage on premiums?

Third-party liability cover is mandatory in India. While it doesn't directly impact your own vehicle, it can influence premiums, especially in cases of high-value claims against third parties.

Q5. How do add-on covers affect insurance premiums?

Add-on covers provide additional protection beyond basic coverage. While they enhance coverage, they also increase premiums. It's essential to choose add-on covers that align with your specific needs.

Q6. Can I get a discount on my insurance premium if I have multiple policies with the same insurer?

Yes, many insurers offer discounts for multiple policyholders. This can help reduce your overall insurance costs.

Author: Rajesh Mishra

Rajesh Mishra is a professional and multilingual writer with over 12+ years of versatile experience in content writing.

He has crafted compelling narratives across a diverse array of industries, including BFSI, fintech, IT, pharmaceuticals, e-commerce, education, fashion, and more. He is a commerce graduate from Mumbai University. His strong academic foundation and passion for storytelling enable him to engage audiences and deliver impactful content.

 

He is adept at transforming complex concepts into clear, relatable language, making his work accessible to both, industry professionals and everyday readers. He thrives in dynamic environments, leveraging his extensive knowledge to create articles, blogs, whitepapers, and marketing materials that resonate with target audiences. Driven by a commitment to excellence and a keen eye for detail, Rajesh Mishra continuously explores emerging trends and technologies, ensuring his content remains relevant and thought-provoking.