Motor Insurance Premium Calculation Explained (2025)
Understand how your car insurance premium is calculated — step-by-step with real examples.
A motor insurance premium is divided into two major components: Own Damage (OD) and Liability (Third-Party). These components are regulated by the Insurance Regulatory and Development Authority of India (IRDAI) and vary depending on your vehicle’s specifications, age, and location.
Part I: Own Damage (OD) Premium
The Own Damage (OD) premium protects your vehicle against losses due to accidents, theft, fire, or natural calamities. It is calculated based on the Insured Declared Value (IDV) and a rate defined by the insurer, along with applicable discounts and add-ons.
Formula:
OD Premium = (IDV × Premium Rate) + Add-ons – Discounts
Example:
- 🚗 Vehicle Type: Private Car
- 💰 IDV: ₹10,00,000
- ⚙️ Engine Capacity: 1196 cc
- 📅 Age: 4 Years
- 🪑 Seating Capacity: 5
- 📍 Registration: Delhi
- 🎁 No Claim Bonus (NCB): 20%
- 💸 Discount Offered: 30%
- 📊 Rate Applicable: 3.283% (as per latest IRDAI Tariff)
Step 1: Basic OD = ₹10,00,000 × 3.283% = ₹32,830
Step 2: Less 30% Discount = ₹32,830 – ₹9,849 = ₹22,981
Step 3: Less 20% NCB = ₹22,981 – ₹4,596 = ₹18,385 (Final Own Damage Premium)
Part II: Liability Section (Third Party + Add-ons)
Liability Insurance covers legal obligations to third parties for injury, death, or property damage. It also includes compulsory and optional personal accident coverage.
- ⚖️ Third Party Liability: ₹2,863 (Mandatory)
- 👨👩👧👦 Personal Accident Cover for Passengers: ₹250 (₹50 × 5 passengers, ₹1L cover each; optional up to ₹2L)
- 🧾 Legal Liability to Paid Driver: ₹50 (Mandatory; covers employer liability under Workmen’s Compensation Act)
- 🧍♂️ PA Cover for Owner-Driver: ₹750 (Mandatory for vehicles registered in individual's name)
Final Liability Premium: ₹2,863 + ₹250 + ₹50 + ₹750 = ₹3,913
Final Calculation
Net Premium = ₹18,385 (OD) + ₹3,913 (Liability) = ₹22,298
+ 18% GST = ₹26,312 (Final Payable Premium)
- Install AIS140-certified anti-theft devices to get additional discounts.
- Opt for voluntary deductibles to reduce your OD premium.
- Keep your claim history clean to retain a high No Claim Bonus.
- Renew your policy before expiry to avoid NCB reset.
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