How to Calculate Car Insurance Premium
Car Insurance

How to Calculate Car Insurance Premium

It is mandatory to have a car insurance policy in place before you hit the road. A third-party liability insurance is the basic coverage that will protect you in case of damages or legal liabilities to a third party because of an accident involving your car.

For most of us, the decision to buy a car insurance policy is solely based on premium. The premium varies on the type of insurance cover you choose. But not many among us know the different ways the premium is calculated. Let us understand it in detail.

The fine print of insurance policies has many important policies. You can read the terms and conditions, the inclusions and exclusions as well as the special causes in the fine print. The premium, however, will always be told upfront. We only hear the number but do not understand how this number was arrived at.

The premium of your car is calculated on the Insured Declared Value (IDV) of the car, the age and type of vehicle and the capacity of the engine. Let’s take a look at how to calculate car insurance .

Premium for third-party liability cover:

The third-party liability insurance premium will be based on the capacity of the car, and it is issued by the Insurance Regulatory Authority of India (IRDAI).

Premium for own damage cover:

In case of the own damage cover, the insurance premium will be based on the IDV. The higher the IDV, the higher the premium. With time, the car will get older and the IDV will decrease. The premium will be calculated using the formula decided by the Indian Motor Tariff.

Estimate the IDV

IDV= Price of the car at the showroom + cost of the accessories - depreciation value of the car, as per IRDAI.

Now, you can calculate the insurance premium of the car as follows:

Premium amount= IDV X [premium rate fixed by the insurer + add-on] - discounts and benefits

If you have any add-ons like bonus coverage, it will be added to the premium rate. The discounts and benefits offered by the insurer like no-claim bonus (NCB) or theft discount will be deducted to arrive at the final premium amount.

The premium for personal accident cover

This cover is over and above the car insurance and it will cover you for accidents and unfortunate events leading to a disability. It is possible to increase the sum insured and include other passengers in the policy. However, for this cover, the premium will go higher with an increase in the sum insured.


Riders or add-ons will provide additional protection and coverage at a nominal cost. You can choose the rider based on your requirement and increase the coverage. Roadside Assistance will send help if the car breaks down while you are in the middle of the road. Further, NCB Protection will allow you to make two claims without you losing the NCB. Hence, every rider will serve a different purpose and enhance your coverage. The cost of the rider will be provided to you by the insurance company.


It helps to understand how to calculate car insurance premium before you make the buying decision. Compare different policies and then make a buying decision but never base your decision solely on the premium amount.

Disclaimer: The above information is indicative in nature. For more details on the risk factor, terms and conditions, please refer to the Sales Brochure and Policy Wordings carefully before concluding a sale.

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