🚗 Basics of Motor Insurance Premium Computation

Basics of Motor Insurance Premium Computation

Step 1: Understand Your Motor Vehicle Insurance Value (IDV)

The most crucial part of motor insurance is the Insured Declared Value (IDV). This represents your vehicle’s current market value and is the maximum amount payable by the insurer in case of a Total Loss Claim (TLC).

For example, if your car gets stolen, burnt, or completely damaged in an accident and cannot be repaired, the insurance company compensates you with the IDV amount stated in your policy. This ensures you are financially protected from total loss events.

Tip: Always choose an IDV close to the market value of your vehicle. A higher IDV increases premium, while a lower one reduces claim payout.

Step 2: Know Your Rate of Own Damage (OD) Basic Cover

The Own Damage (OD) cover is the foundation of your motor insurance. It provides protection against accidental damage, fire, theft, natural disasters, and man-made calamities. The premium for OD directly reflects the value and risk level of your vehicle.

According to IRDAI guidelines, insurers follow fixed parameters for OD premium calculation based on:

  • Zone of vehicle registration
  • Age of the vehicle
  • Cubic Capacity (CC) or Gross Vehicle Weight (GVW)

➤ Zone Classification

  • Zone A: Major metros like Delhi, Mumbai, Chennai, Kolkata, Bengaluru, Hyderabad.
  • Zone B: Other areas of India (for private vehicles).
  • Zone C: Non-metro regions (mainly for commercial vehicles).

➤ Vehicle Type and Classification

  • Private Car: Up to 1000 CC, 1001–1500 CC, Above 1500 CC.
  • Two Wheeler: Up to 75 CC, 76–150 CC, Above 150 CC.
  • Commercial Vehicle (GVW): Up to 7,500 kg, 7,501–12,000 kg, 12,001–20,000 kg, 20,001–40,000 kg, and above 40,000 kg.

➤ Vehicle Age Brackets

  • Up to 5 Years
  • 6 to 10 Years
  • Above 10 Years
Note: The older the vehicle, the lower its market value — which means lower IDV and reduced Own Damage premium.

Step 3: Understand Your Third Party Liability (TPL) Premium

Under Indian law, Third Party Liability (TPL) insurance is mandatory for all motor vehicles as per the Motor Vehicles Act. It safeguards you against financial and legal liabilities in case your vehicle causes damage to another person or property.

For instance, if your car accidentally hits a pedestrian or another vehicle, your TPL policy covers the compensation for the third party’s injury, death, or property damage. However, it does not cover your own vehicle repairs or losses.

Therefore, it’s always wise to opt for a Comprehensive Policy — combining both TPL and Own Damage coverage for all-round protection.

➤ How TPL Premium is Calculated

The TPL premium is standardized by IRDAI and primarily depends on your vehicle’s engine capacity:

  • Cars up to 1000 CC – Lowest premium slab
  • Cars between 1000 and 1500 CC – Moderate premium
  • Cars above 1500 CC – Highest premium

Similarly, two-wheelers follow the same engine-based premium structure, and new bikes often come with long-term TPL cover (up to 5 years).

Pro Tip: Review your motor insurance every renewal cycle. Ensure your IDV, OD, and TPL premiums reflect your vehicle’s condition. Add optional covers like Zero Depreciation, Engine Protection, and Roadside Assistance for enhanced protection.