A Beginner’s Guide To Understanding Car Insurance Premiums 

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Car insurance protects the owner of the car against financial losses resulting from theft or unintentional damage to the vehicle, as well as legal liabilities resulting from third-party damages. The coverage is in accordance with the policy’s terms and conditions.

If you own a car, you must have motor insurance, and the policy covers your legal duty in the event of physical loss/damage or damage to a third party. Here’s everything you need to know about car insurance, which will help you to compare your insurance options, like the ones offered by https://www.youi.com.au/, like a pro.

All About Car Insurance Premiums

The most straightforward explanation is that a car insurance premium is the amount of money you pay to your insurance provider in exchange for coverage. The payment will be made just once, at the time of obtaining the policy, and will cover the whole policy period.

The cost of vehicle insurance varies based on the insurance provider, the type of automobile, geographic region, the type of insurance coverage you’ve chosen, add-on coverages, insurance policy deductible, and a variety of other considerations, such as your driving record and even your age.

How Does It Work? 

As a potential buyer of a new car or as a vehicle owner, you should be aware that your vehicle must be insured (comprehensive or third party only). When you’re behind the wheel, you need car insurance to protect yourself financially. The Motor Vehicles Act of 1988 also makes third-party insurance mandatory for car owners. The majority of auto insurance coverage is only good for a year. To keep the policy active, you must pay an annual renewal premium. 

Calculation Of Your Car Insurance Premium

In most insurance plans, there are various provisions in the fine print—the general terms and conditions section, exclusions, and so on. We rarely read the tiny print and instead focus on the highlights, such as the premium amount, the insurance term, the policy’s basic coverages, and so on.

We prefer to compare the figures without actually knowing how the amount presented itself because the premium amount is the primary focus while obtaining the coverage. Moreover,  We spend little effort to learn how the insurance company determines the amount.

Nonetheless, a number of factors influence your auto insurance rate –– this includes the Insured Declared Value (IDV) of the vehicle, the age of the vehicle, the cubic capacity of the engine, the geographical zone, personal accident coverage, other add-ons, and supplementary benefit/legal liability coverages.

Insured Declared Value Of The Vehicle (IDV)

If your car is damaged to the point of total loss or the cost of repair exceeds 75 percent of the IDV, your insurance carrier will pay the maximum claim amount (minus deductibles) if the damage is a “total loss” or the cost of repair exceeds 75 percent of the IDV. In the event that your car is stolen, the same rules apply.

These are indemnity policies, which means you will be given compensation up to the value of the damage to your automobile, up to the policy’s maximum IDV. When you buy a new automobile and insure it, the insurance company calculates the IDV based on the ex-showroom price and depreciation according to the India Motor Tariff (IMT).

Your vehicle’s value is now decreasing every year, according to the IMT depreciation slab. As a result, if your car’s IDV is low, your insurance rate will be lower as well. It’s a good idea to choose the appropriate IDV based on the car’s age and ex-showroom price to ensure that the vehicle is properly insured.

If your automobile has any additional accessories, such as a high-end audio system or speaker, the value of such equipment will be included individually to the IDV. The price will then be adjusted for any depreciation in the automobile and accessories at the time of renewal. Assume you’re buying insurance for a car that’s more than five years old. In that instance, the IDV will be established after adjusting the value after depreciation based on an agreement between you and the insurance provider.

Age Of The Car 

As your vehicle ages, it begins to lose value for a variety of reasons. Furthermore, the introduction of newer models lowers the cost of your vehicle. The biggest cause of depreciation is the vehicle’s general wear and tear as compared to a new model. Insurance firms follow a fixed timetable for automobiles and their market value, which varies depending on their age. The schedule is unaffected by the vehicle’s manufacturer. 

Engine’s Cubic Capacity 

The cubic capacity of each car’s engine is used to determine its size. The size of your car’s engine has a significant impact on the amount of insurance premium you’ll pay for your coverage. In most cases, the rate for third-party insurance is the same for new and old cars. This is because the premium is based on the engine size rather than the car’s total age. 

Geographical Zone

The insurance rate you pay for your car is determined by the city in where it was registered. The Motor India Tariff categorizes geographical areas into two zones: Zone A and Zone B.

Ahmedabad, Hyderabad, Mumbai, Pune, New Delhi, Chennai, and Bengaluru are all in Zone A. These cities’ vehicles are thought to be more prone to theft and accidents. The rest of India is included under Zone B. Automobile insurance premiums in Zone A are greater than those in Zone B.

Own Damage (OD) Cover 

In most cases, while getting car insurance, the personal damage coverage is an optional extra. It is, nonetheless, really useful and recommended. It assists you in covering the costs of repairing your car in the event of damage caused by risks covered by your insurance policy, such as fire, earthquakes, accidents, floods, and so on. If your vehicle’s IDV is higher, your premium will be higher, and vice versa. 

Personal Accident Cover For Owner Driver And Others

This part of your automobile insurance premium goes above and beyond to safeguard you. The coverage covers the owner’s vehicle against accidents, death, and disability up to a maximum of INR 15 lakh.

You can also choose to add passengers to your vehicle by purchasing personal accident insurance with a variable sum covered, as permitted by the India Motor Tariff. As the sum assured rises, the premium rises with it.

Other Add-ons

The add-on coverages are the final component that determines your auto insurance premium. Add-ons are optional coverages that allow you to purchase a more comprehensive insurance policy. There are a variety of add-ons available, including coverage for depreciation at the time of claim, engine damage caused by flooding, etc., emergency roadside assistance, and more.

Each add-on strengthens your insurance and ensures that you are covered completely. As you select more add-ons, the premium amount will be adjusted to account for them all, resulting in a greater premium.


As we can see, the cost of automobile insurance is determined by a variety of factors. The amount varies from person to person and is determined by a combination of the above criteria. The bottom line is to get a car insurance policy that provides comprehensive coverage and complete financial loss protection.

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